Consultations with the IMF

Last week’s meetings between Finance Minister Ishaq Dar and IMF Mission Chief Herald Finger in Dubai, as required under Article IV of the IMF’s Articles of Agreement to keep aid flowing, did not significantly differ from previous such meetings. Pakistan was once again forced to admit, as it does every year, that it would not be able to meet its budget deficit reduction targets. We had told the IMF we would be able to keep the budget deficit to 3.8 percent of GDP but it is already being projected at 4.1 percent and the number will likely increase further by the end of the fiscal year. What was notable was the reason – or rather excuse – the government gave for not being able to meet its targets. According to Dar, the deficit is higher than expected because the government did not pass on the full cost of the international price of oil onto the end consumer. While it is true that the government does subsidise electricity and gas to some extent, what was not mentioned is that the Federal Board of Revenue is likely to collect Rs300 million less in taxation revenue than it had projected. It is Pakistan’s inability and unwillingness to go after tax dodgers that cause our deficit to balloon every year rather than the meagre subsidies handed out to those who would otherwise be unable to afford petrol and electricity.

Pakistan’s explanation is likely to satisfy the IMF though because it too has long pressured countries to gradually eliminate subsidies. The IMF’s own structural adjustment policies, which have long been discredited, try to balance the budget on the backs of the poor. The IMF also appeared to be satisfied with the progress of the China-Pakistan Economic Corridor, on which we have staked so much of our future prosperity. Finger called on Pakistan to increase its exports, which it has been unable to do as its agricultural and industrial output has stagnated. Dar admitted that Pakistan’s trade deficit would stand at $20 billion although he seemed optimistic that once CPEC projects were completed that too would improve. But it is imprudent to put all our eggs in one basket, especially when our economic indicators are still weak. We cannot use CPEC as an excuse for not getting our own house in order and finally widening the tax net to include the politically-influential elite. The IMF may not care how we reduce our deficit so long as it gets done but it would be unconscionable for the government to reduce subsidies to appease the IMF and let the wealthy continue to dodge taxes.