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Tuesday April 16, 2024

The cost of populism

By Mansoor Ahmad
February 27, 2024


Representational image of an IMF logo along with the Pakistan flag. — The News File
Representational image of an IMF logo along with the Pakistan flag. — The News File

LAHORE: The incoming coalition Pakistani government must come out of firefighting mode and adopt public appeasing postures by instituting the much needed reforms.

Since we are acutely short of resources, our rulers have to rush to foreign friends and international institutions for short-term loans, which are to be returned in one year.

Then we consume our energies and time on getting those loans rolled over for another month. The finance managers of the country remain engaged in this practice throughout the year, because these loans are up for payment to different countries every alternate month.

We immediately need a long-term arrangement with the IMF. The IMF would be closely watching the economic policies of the new government and would refuse to negotiate if we moved away from the already laid out conditions given in the ongoing program that ends in April. For the time being, we have no choice but to engage the IMF.

Unfortunately, no government in Pakistan implements the IMF program in letter and spirit. When we deviate from the IMF program, they withhold the payments due under the agreement.

It is not their fault, because we violate the agreed actions. Then the IMF staff engages in a long negotiation and gives a positive report only after the staff is satisfied with the actions taken.

Gone are the days when the IMF used to give Pakistan waivers on many issues. They now know that they cannot trust the economic managers of the country on implementing required measures later. The IMF, for instance, is asking the government to privatize the loss making public sector enterprises, but no tangible progress has been made in this regard.

There are so many players involved in the privatization process that every government finds it impossible to satisfy all of them. In the expected coalition government, different coalition partners have a diversified stance on privatization. Some, in fact, do not want these entities privatized.

The logic of privatization is that the state would spare over a trillion rupees loss that these entities incur every year. Privatization, even at a nominal price, would spare a loss of over a trillion rupees per year.

Then the IMF wants the tax to GDP ratio to be increased, which is pathetically low in Pakistan. Our rulers and bureaucracy want to increase revenues by increasing taxes instead of bringing tax evaders into the tax net. The rulers, moreover, are not willing to do away with the undue perks and privileges not befitting the nation operating in a huge deficit for decades.

They are also not willing to tax the exempted sectors and firms. They want to retain their powers to issue SROs on whims. They do not want fair and transparent accountability.

They dare not apprehend owners of huge properties or luxury cars that do not pay any tax. The rulers and the bureaucracy are unwilling to part with discretionary powers that in most cases are a source of income for most of them

The new government will no more enjoy the luxury of announcing public appeasing expenses, because those that would issue loans would not allow it. The new loans should be consumed to strengthen reforms that would bring good governance and accountability.