IMF dilemma

Pakistan’s first biannual review under the EFF concluded last Friday without a staff-level agreement, despite both the government and the IMF delegation claiming that significant progress had been made towards reaching a broader agreement. When exactly this will happen remains unclear. The IMF has termed Pakistan's implementation of the programme as ‘strong’ but frequent changes by policymakers could be a reason there hasn't been a consensus and the SLA is not yet finalised. At one point, when consensus seemed achievable, it was claimed that the political leadership might not accept the harsh conditions. Major stumbling blocks also include the inability of the government to achieve a primary surplus of Rs2.4 trillion for the current fiscal year, persistent losses in the power sector, unresolved issues related to state-owned enterprises (SOEs), delays in privatisation deadlines, and challenges in curtailing expenditures. Some of the things that have been agreed upon, however, are an increase in the number of point-of-sale (POS) machines by several thousand within the current fiscal year, video surveillance of manufactured goods and the scrapping of the Tajir Dost Scheme.

The latter has been set aside after the Federal Board of Revenue (FBR) shared data indicating that tax collections from retailers, wholesalers and Associations of Persons (AOPs) have far exceeded the Rs50 billion target initially envisaged under the scheme, with data showing that the FBR had collected over Rs400 billion from the trading activities of retailers, wholesalers and AOPs. That being said, overall, the authorities did in fact fall short of revenue collection targets for the first eight months of the ongoing fiscal by a sizable Rs604 billion. That and the difficulty in curtailing expenditures likely complicated the faster achievement of a deal with the IMF. The reports of political leadership terming certain conditions as too harsh and that becoming a stumbling block are also not reassuring, even if they are understandable. The whole IMF process so far has been quite brutal for ordinary Pakistanis, who have seen their taxes and tariffs rise, their salaries remain stagnant and market prices that remain far too expensive even if they are no longer rising as fast. Politicians are right to be wary of any further measures that exacerbate this dynamic given the backlash they might cause.

At the same time, what other options are there for the country? The debate about the IMF conditions has been going on since the EFF was signed last summer and even before that. The pattern thus far has been for the government to try and somewhat soften the blow of fiscal and monetary tightening while essentially pushing in a direction that discourages more spending and growth. This is likely how this latest impasse with the IMF is going to be resolved too. The country desperately needs to spend on things like infrastructure, health, education and welfare and yet it does not seem to have any feasible way to do so given that the institution keeping the whole economy afloat is moving things in a different direction. The price of what stability has been achieved through these means has disproportionately fallen on average Pakistanis, as would the cost of failing to continue with the EFF. Cliched as it might be, the country and its people are truly ‘between a rock and a hard place’. Avoiding getting crushed will require a more equitable distribution of the costs of stability. More wealthy individuals and corporations have to be brought into the tax net and there can no longer be any excuses for sustaining unproductive government sectors. This is the least that can be done to make the economic belt-tightening more bearable, politically palatable and, ultimately, sustainable.