Cash-starving Pakistan may bank on IMF

There are talks about the cutting the size of the army which numbers more than half-million. This measure can help direct lot of funds to the social sector development. But before doing this, there is need of rethinking the security policy of the country. And it will not be possible without taking away from the state the responsibility to defend the ‘ideological’ frontiers — it is really a costly job!

By Riaz Missen

The International Monetary Fund (IMF) has shown eagerness to save Pakistan from economic collapse at the time its friends and allies refused to lend a helping hand. Even China, which President Zardari toured with lot of fanfare, did not respond as quickly as the guest was expecting.

 IMF was the lost priority of the PM’s advisor on finance and the de facto finance minister, Mr Shaukat Tareen, as he was sure that Pakistan’s role in war on terror and its democratic credentials would urge the world to save Pakistan from a looming default.

IMF is not going to help Pakistan for the first time. It has done so on several occasions in the past as well. But this international financial institution (IFI) has always been loathed. IMF has never been the first choice of civilian regimes.

It is not what the IMF charges on its loans the regimes of the countries like Pakistan dread but these are the conditions which it insists should be fulfilled like curtailing public expenditure, withdrawing subsidies, expanding the tax base and adopting austerity measures.

IMF started lending its helping hand to the economically depressed countries in the 1970s when many found it impossible to pay their foreign debts due to global economic slowdown caused by the oil crisis. The IMF lent credit to the countries on the verge of default to stabilize their economies as well as enable them to pay off their foreign loans.

The interest rate is as minimal as 2.5% and sometimes as meager as 0.5% per annum. However, IMF asks applicants to restructure their economies to bring efficiency and let more space for the private entrepreneurs by resorting to the measures like privatization of the state-run businesses.

The previous government did accept the IMF loan and undertook some measures like downsizing, deregulation and privatization. However, these measures were carried half-the-way. The semi-democratic regime went ahead only to the benefit of the big businesses. The small investors were losers at stock exchanges, profiteers and hoarders took away essential commodities out of the reach of the commoners and state run industrial units were sold at throwaway prices.

Like the civilian governments in the past, the present one is also reluctant to accept the IMF loan facility for the obvious reasons. It can’t levy taxes on the well offs and big businesses. Though Mr. Tareen has vowed to bring agriculture, stock exchange business and real estate into tax net but he has to go extra long miles to make any difference in this regard.

When the lower and middle income groups can’t be provided relief by lessening the tax burden on them, the government simply can withdraw subsidies only on the risk of losing its face. PML-N is just waiting for the moment to exploit people’s frustration over the rising energy prices and increasing unemployment due to power shut downs.

Going by its vulnerabilities, Pakistan simply can’t escape the looming crisis without the help of the IMF which has offered its liquidity fund to keep the economy afloat. The deal with this IFI will open the door for assistance from the World Bank and Asian Development Bank as well.

The PPP-led regime missed the chance to give positive signal to the IMF as well as the countrymen on the occasion of presenting he budget for this fiscal year. It could have expanded the tax net and announced some relief for the poor and the middle income groups. Unfortunately it failed where it should have succeeded: food, edible oil, gas and petroleum products remained as highly taxed as ever.

The dilemma with the government, hence, is clear. It can’t withdraw subsidies further until and unless it brings down GST and import duty on the essentials particularly kitchen items, petrol and diesel which affects the life of the people the most.

Progressive taxation is the answer while ensuring that the burden is not shifted to the lower income groups through corruption.

The government needs to open up other avenues to end its dependency on traditional sources of revenue. It needs to seriously think of cutting down the non-development expenditure. If it has to withdraw subsidies it should seriously work on the ways to increase spending on health, education and other civic amenities. Cheap justice and rule of law can bring many dividends for both the people and economy — the both.

Foreign tours of the government dignitaries and the bureaucrats, perks and privileges of the heads of the semi-autonomous institutions and the top-down corruption of the officials ultimately burdens the weaker sections of the society.

Instead of investing further on constructing roads and highways, the government needs to improve the railway system and make it more efficient. It will promote business and help cut down the import bill on oil.

There are talks about the cutting the size of the army which numbers more than half-million. This measure can help direct lot of funds to the social sector development. But before doing this, there is need of rethinking the security policy of the country. And it will not be possible without taking away from the state the responsibility to defend the ‘ideological’ frontiers — it is really a costly job!

Necessary amendments in the constitution will certainly redefine the objectives of the state and re-imagine its role and responsibilities as a pluralist entity striving to find a due place in the comity of nations.

Getting rid of the ‘ideological’ burdens will give a strong message to the countries in the neighborhood and beyond. The public expenditure will significantly come down as many institutions will have to be closed. Pakistan will become a heaven for tourists as the country will owe its history far beyond the fall of Sindh at the hands of the Arab armies. Many spiritual sites have attraction for the Hindus and Buddhists a prosperous community of Asia.

Regional trade will not only bring down the cost of doing business, raise the purchasing power of the people and improve the standards of life but it means lot of revenues for the government as well. Further, it will invoke the interest of the neighbors in the peaceful and stable existence of the country.

Weekly Pulse

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About Sutlej News

News stories, features and columns on state and society in Pakistan with special reference to Bahawalpur, a princely state struggling to regain its provincial status it lost in in 1954

Posted on October 27, 2008, in Economy, Governance and tagged . Bookmark the permalink. Leave a comment.

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