IMF’s views

IMF Managing Director Christine Lagarde’s  visit to Pakistan – the first by an IMF head for many years – seemed on the surface to show that the international financial organisation is optimistic about our economy. She said that the economy is out of crisis and the country has achieved macroeconomic stability. That Lagarde’s seeming vote of confidence came just two months after the IMF released the final tranche of a $6.4 billion lending programme would indicate that the spigot will stay turned on should we need it. But the government should pay more attention to the criticisms Lagarde made, both because it highlights the work still left to be done and as a demonstration of the IMF’s priorities, which often do not match those of the country. Lagarde said we needed to widen the tax net, a problem that has always afflicted Pakistan. Rather than finally get serious about collecting income tax from the rich, the government has chosen the easier path of raising indirect taxes. It has tried to increase the burden of non tax-filers by making it more expensive for them to carry out banking and other transactions but it has not improved collection of taxes from the industrial and agricultural elite. So long as we are unable to collect sufficient tax revenue, we will be mired in a debt spiral and be dependent on the likes of the IMF.

More ominously, Lagarde said that the state will have to take action on the expenditure side too. Past experience with the IMF tells us that this will translate into a further reduction in subsidies for gas, petrol and electricity and perhaps another bout of privatisation too. The IMF is ideologically committed to what it euphemistically calls ‘structural adjustment’ – essentially telling the government to stop providing subsidies to the poor – and the PML-N seems to share that ideology. She did pay lip service to social security programmes like the Benazir Income Support Programme but wanted the money for that to come from reduced expenditures elsewhere. Lagarde pointed out that both corruption itself and the perception of corruption would need to be reduced to increase foreign investment and keep confidence in the economy high but tried to stay out of the political controversy caused by the Panama and Bahamas leaks. Ultimately, the improvements in our economy have a lot to do with the low international price of oil and Chinese investment thanks to the CPEC. We have placed all our economic eggs in the CPEC basket and would do well to take Lagarde’s advice on increasing tax revenue so that we are not so reliant on outside actors in the future.