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February 8, 2018

IMF proposal


February 8, 2018

Hands off should ideally be the message from Pakistan to the IMF after the country’s creditor of choice seems to have indicated yet another condition. This time the IMF seems to have decided to target the National Finance Commission (NFC) award – a constitutional mechanism designed to make our rather precarious federal structure work. The NFC award itself continues to generate controversy every time it comes up for debate. The federal government wants more and each province wants more. The result is a tense settlement that no one is happy with. The aim of the award is to keep provincial harmony in the country. After devolution was finally agreed upon in the last PPP government, the provinces have a greater right to demand a larger share in the country’s tax revenues in return for allowing the federal government to collect more revenue streams. If the IMF proposal to restructure the NFC award is pushed through, there is a chance of more provincial grumblings in the already tense NFC award meetings. There are rumours that the provinces are already unwilling to accept the government’s proposal to take a greater cut under security expenditures. It would be highly unlikely that any proposal to move greater funds to the centre under IMF dictates would be accepted.

The IMF proposal is in any case a non-starter. It has asked for the creation of a council of fiscal technocrats under the Council of Common Interests, a joint contingency fund and a permanent national tax commission to oversee areas where provincial and federal jurisdiction meets. The first two proposals are akin to imposing a fiscal emergency in the country. If Pakistan’s finances are doing so poorly, this is something that the federal government should make clear and admit its failure. The IMF’s opposition to the devolution of finance has been well known; it seems the Fund is set to describe the 7th NFC award as a constraint on the government’s ability to address macroeconomic imbalance as well as making it unable to tackle potential economic shocks in the near term. One must wonder if the IMF is suggesting that stripping provinces of funding is how Pakistan must deal with any fiscal crisis. One must also wonder if the IMF even understands what that means for the country’s politics and political economy. The proposal for a contingency fund is not a bad one,, especially in case the country is threatened by a fiscal emergency. For all intents and purposes, this is not a situation that has been declared. Even if there was, the underlying problem is not that the provinces are given too much share in revenue, but that the revenue collected is low. There is really no need for the surgical intervention that the IMF is proposing.

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