|In view of the massive and snow-balling current account and budgetary deficit that the PTI government inherited, attributable more to the political instability fomented by the PTI itself than the much-trumpeted flawed economic policies pursued by the PML-N government, it was quite evident that the rulers would have to go the IMF for the 13th time.
The government remained undecided about the inevitable for almost six months in the hope that it might be able to avoid this step by mustering the required help from friendly countries. The finance minister also kept claiming that if at all the government had to go to the IMF it would be doing so on its own terms.
Reportedly, in the backdrop of a protracted dialogue with the IMF by the Ministry of Finance under the stewardship of Finance Minister Asad Umar and the meeting of the Prime Minister Imran Khan with the IMF managing director, Pakistan has moved a step closer to obtaining an IMF bailout package. Though not many details about the deal are available as yet, the indications are that the agency has proposed some tough conditions for extending the loan facility. In a statement, the Fund has called for “decisive policies and a strong package of economic reforms”. Prime Minister Imran Khan himself admitted that his government will sign onto a programme of deep structural reforms. That explodes the myth of repeated government claims that it would negotiate the extended loan facility by the IMF on its own terms.
It is perhaps pertinent to mention that almost all the countries of the world obtain loans to fund their social and development plans as well as to tide over their balance of payments position. Before extending loan facilities to a client, lending institutions like the IMF, the World Bank, the Asian Development Bank and other international financing entities do make sure that the country has the ability to utilise those loans productively and also be in a position to repay them within the stipulated period. So they always extend this facility on terms that they perceive will realise those objectives.
There is nothing wrong with seeking loans from international agencies – provided they are productively invested. Unfortunately, the present loan is being sought to actually repay previous loans and to off-set the negative fallout of the current account deficit. The conditions imposed by the IMF invariably include phasing out the tariff deferential subsidy, sustained improvement in tax collection as well as a significant widening of the tax base and a more equitably shared tax burden, phasing out of all existing statutory regulatory orders (SROs) and other steps that grant special rates and tax exemptions.
Fulfilling those obligations would also require deep expenditure cuts without which the burden will fall on revenue mobilisation which would entail a substantial hike in taxes in the short term. There is no escaping this reality now, so the biggest priority worth holding on to would be to protect the poor and vulnerable from the impact of this adjustment. The PTI ran on a platform of profound change, FBR reforms and providing relief to the poorer sections of the society by changing their economic situation. It will have to deliver on those promises.
Things have not gone the way the government promised and the poorer section expected from the proponents of change. Increase in oil prices and a hike in the tariff on gas and electricity and their impact on other areas has made people miserable. The repeated claims by the prime minister and his team that things will take a turn for the better in the near future do not seem to be as credible as they would like the people to believe.
The predictions by the international lending and rating agencies also present a very dismal picture about the state of our economy in the next two years. The IMF has lowered its 2019 economic growth forecast for Pakistan and the region by 0.3 percentage points to 2.4 percent before recovering to about 3 percent in 2020. Fitch has downgraded Pakistan’s rating from B to B negative in December 2018 and its predictions for the future are also not very encouraging. It has predicted that the SBP will have to devalue the rupee against the US dollar again in the coming months as the currency will remain under depreciatory pressures with weaker external finances. It has warned Pakistan of larger economic distortions and greater pain in the future for seeking unconventional funding sources to avert the balance of payments crisis and little appetite for austerity and economic reforms.
The SBP in its first quarterly report has also admitted that the country may not be able to achieve the projected growth rate of 6.4 percent and has accordingly trimmed its forecast to 4-4.5 percent, citing under-performance by the industrial sector, slashed spending on development projects and high rate of inflation which has badly affected consumer industries due to a decline in the purchasing power of the consumers.
The mini-budget or the reforms package, as the finance minister prefers to call it, provides very little relief to the poorer sections; most economists have dubbed it as friendly to the business class. Economist Waqar Masood Khan says “it has taken the country further away from economic stability. The strategy of the government, it seems, is to skirt the challenges and ease the payments pressure by using support from friendly countries. This is a myopic strategy, good perhaps for a government which may have only a year in office”.
It is pertinent to mention that Imran Khan and his party stalwarts have been criticising and reviling the PML-N for excessive borrowing and failing to provide relief to the masses. Ironically, after assuming power the PTI government is also pursuing the same course with increased velocity. Economists fear that during the current financial year the government may be forced to pay 50 percent of all the taxes collected by FBR, which would be a record in the financial history of the country.
Evidently, the proponents of change are not in a position to deliver on their promises. How long the poor masses will be required to make sacrifices for an illusory prosperous future remains a million-dollar question.
The writer is a freelance contributor. Email: ashpak10gmail.com