Money Matters

Writing on the wall!

September 11, 2017
By Zeeshan Haider

The Pakistan Muslim League-Nawaz (PML-N) came into power in 2013 with a promise of breaking the “begging bowl”.

It was making claims of bringing about an economic turnaround when it was half-way through its five-year tenure. It successfully completed the IMF’s three-year Extended Fund Facility (EFF) programme which helped it avert an imminent balance of payment crisis and laid foundation for the economic stability.

But now when it is heading towards the end of its five-year rule, the country is all set to revert to the IMF for another bailout package.

One could question what happened to the tall claims of finance minister Ishaq Dar that his economic team has brought about an economic turnaround in the country? One could justifiably ask the IMF why it lavishly praised an economic strategy which could not sustain on its own even for a full single year after the lapse of the EFF programme.

The answers to these questions are simple. The government, like its predecessors, failed to enforce the badly-needed reforms that could have helped it consolidate the gains made over the first three years of its rule and the IMF too conveniently overlooked the sluggish behaviour of the government.

After salvaging the country from the default, the government should have immediately drawn up a robust strategy to lure private, particularly foreign investment and boost exports as well as foreign remittances.

The government did try to attract private investment by offering its loss-making units for privatisation but its efforts were hamstrung by the opposition from the political parties.

Though the energy crisis was one of the main reasons behind the decline in the exports and the government did give significant attention to mitigate this problem, it failed to address other problems faced by the exporters.

Former prime minister Nawaz Sharif did announce a hefty package of 180 billion rupees to boost the country’s dwindling exports, but it failed to achieve the desired results as many of the problems faced by the exporters particularly those from the country’s vital textile industry remained unresolved.

Due to the financial crunch faced by the Gulf countries, which are the main source of foreign remittances for Pakistan, there has been a sharp decline of repatriation of money from overseas Pakistanis to their native country.

The combination of all these factors led to a whopping increase in the current account deficit of the country which is putting tremendous pressure on the foreign currency reserves of Pakistan.

Government’s economic managers are still insisting that high bill for the import of machinery for the China-Pakistan Economic Corridor (CPEC)-related projects is the main reason behind the sharp increase in the current account deficit.  They insist it would be covered once these projects would operationalise, but critics say dismal performance of exports should be the main cause of worry for the government.

The government is averse to any depreciation in the value of rupee against dollar to boost exports as it could lead to increase in inflation which would be politically problematic for the government which is entering election mode in few months.

Prime Minister Shahid Khaqan Abbasi has recently ruled out possibility of devaluing the local currency and said the government instead would try to curb imports through tariffs and to boost local production.

“Devaluation is our option, theoretically, even though it should incentivise exports but in reality it doesn’t,” Abbasi said in an interview with a foreign news agency. “So at this moment as I said devaluation is not on the table.”

With no chance in sight for a boost in the exports in near future which could put foreign currency reserves under severe pressure, the government has no other option but to borrow again to return the money the country has already borrowed. 

The question is whether the sitting government would negotiate the new bailout package with the IMF which could be politically risky for it in the wake of general election or leave it to its successors, as was done by its predecessors, to deal with the situation.

Given the political risks as well as the emerging regional situation, particularly Pakistan’s strained ties with the United States, which virtually calls shots in the IMF and other international financial institutions, the negotiations and terms for the proposed bailout package could be difficult for the country.

Successive governments in Pakistan have borrowed money ruthlessly to keep the economy afloat but have not shown much-required reforms to reduce reliance on foreign loans.

Reformation of Pakistan’s corrupt taxation system should be the top priority of the policymakers, whereby the wealthy and affluent section is made to pay the taxes, but unfortunately the sword of taxation has always fallen on those who honestly pay their taxes.

Pakistani donors have long been pressing the rulers to bring in wealthy sections of the society into the tax net but that advice has always fallen on deaf ears.

Former US secretary of state and presidential candidate Hillary Clinton in 2010 has very bluntly asked Pakistanis to pay their taxes as her country could no longer burden its tax payers to foot the bill for their shortcomings.

Her sentiments were echoed by late Richard Holbrooke, the then US special envoy for Afghanistan and Pakistan, who was known for his tough talk.

“The US government is under tremendous pressure, the EU is under budget pressure, we have our own infrastructure problems ... We will help Pakistan but we cannot do everything in the reconstruction phase.”

Shah Mehmood Qureshi, the senior leader of the Pakistan Tehreek-e-Insaf who was the country’s foreign minister at the time, had said Pakistan was mindful of its obligations and would do the needful to reform its tax system.

“Regardless of what Hillary Clinton says, we are going to do what is right for Pakistan and I think the tax system has to be more equitable,” he told reporters after meeting officials from the European Union, the United States and other countries in Brussels to help raise funds for relief for the devastating floods in that year.

“We have to correct that,” he said.

But seven years down the road, Pakistan has very little to show progress on this issue.

The writer is a senior journalist based in Islamabad