Daily Times

Bad habits die hard. One of them is to restructure debt. However, on February 18, on the sidelines of the Munich Security Conference, the managing director of the International Monetary Fund (IMF), Kristalina Georgieva said unequivocally that “there is no debt restructuring for Pakistan.”

Georgieva, a Bulgarian economist serving the IMF, made it clear that Pakistan should stop thinking about restructuring its debt. The facility is no more available. Instead, Pakistan needed strict and urgent measures to “run as a country and not reach a dangerous point where it needs to rebuild itself.” The implied allusion might be to any country experiencing sovereign default (such as Greece in 2015 and Sri Lanka in 2022) and which pulled itself out of a political disaster caused by an economic meltdown. Presently, Pakistan teeters on the edge of sovereign default.

In simple words, Georgieva is saying that an economic collapse can spill a disaster for the political integration of the country. Instead of touching rock bottom, as Greece and Sri Lanka did, Pakistan must restructure its economy, which is favouring the rich at the cost of the poor, and which is keeping Pakistan in a state of unending unserviceable debt.

Georgieva also gave two pieces of advice: first, Pakistan should collect higher taxes from the rich and give benefits to the poor; and second, Pakistan should extend only targeted subsidies, directed at the poor.

Pakistan is synonymous with housing schemes.

She is saying that the rich should be taxed more than the present tax regime to collect more revenue. On the ground, however, the state of affairs is that Shaukat Aziz, as Finance Minister (12 October 1999 – 15 November 2007), minimized direct taxation and maximized indirect taxation to run the economy, under the tutelage of General Pervez Musharraf. Earning through indirect taxation helped the economy greatly initially. However, the reliance opened the floodgate of liberal import which favoured luxury items, which gradually increased the import bill, and outclassed export earnings to cause an ever-increasing trade deficit. Now, Pakistan finds it difficult to scale down the deficit.

Over-reliance on indirect taxes has also engendered other effects. For instance, for daily commuting, people are dependent on plying personal vehicles and not on using public vehicles. Furthermore, Pakistan is synonymous with housing schemes. One construction builder is pitted against the other to buy more and more land to erect gated communities offering golf courses, swimming pools, security guards, and other pieces of comfort. Some housing societies even claim to supply electricity around the clock. These housing societies have engulfed cultivable agricultural land. Even small and medium-scale industry has vanished. Owners sold their industrial lands to housing schemes in return for higher accumulative profits. Either the industry has been relocated to some other country such as Bangladesh, Malaysia and Hong Kong or the money so obtained has been used for buying nationality of some other country including Canada, Spain, and Portugal. East European countries which have recently joined the European Union have been the best next destination. The process of money transfer has also contributed to the rise in the price of the dollar, thereby depleting the foreign currency reserve in dollars. Nevertheless, what is left of Pakistan is poverty and paucity. The second route bleeding Pakistan’s dollar reserves in Afghanistan. Georgieva also expressed her concerns for the poor when she raised a pertinent question: “why the rich in Pakistan should benefit from the subsidies and should not pay taxes in the face of tremendous challenges?” In western countries, the higher the earning, the more the tax slab for contribution to the economy. This is the point to which Georgieva has invited Pakistan’s attention. However, the question is this: where are the rich? The answer is this: most of them have immigrated to foreign countries to ensconce themselves in a place which is safer for both their families and capital. Even a substantial number of retired military generals, admirals and air marshals have left Pakistan.

Factors such as frequent military interventions (directly through martial laws and indirectly through hybrid regime experiments) and a compromised judiciary have rendered people feel insecure about the future of their families and capital. Every educated and skilled Pakistani prefers to leave the country. Instead of serving the country, they prefer to send foreign remittances. This process is difficult to be reversed in the near future. Interestingly, the major chunk of foreign remittance is used for buying property (land and houses) and vehicles, which consume energy (electricity and oil). Moreover, foreign remittance is used for opening a shop to import items from, say China, to sell in the local market. That is it. No need of installing a local manufacturing unit. Just import and sell as a retailer. This is how foreign remittances contribute to more imports and the consequent flight of capital from the country.

The next best question is this: who will pay the taxes to meet the IMF’s conditions? The answer is this: the poor. An elaborated choice is this: either exact money from the poor or reduces non-developmental expenditures in both civil and military sectors.

On the one hand, Pakistan is a debt-ridden cash-starved country, whereas, on the other hand, Pakistan’s roads and streets are brimming with imported luxury automobiles. The paradox is detrimental to the economic health of the country. When the government subsidizes petrol and diesel – even if for the sake of the poor – the rich also get the benefit.

One thing Georgieva has made clear: the age of untargeted subsidies, whether the sector is energy (oil, gas, petrol, diesel, and kerosene) or agriculture, is over. For instance, if people can buy luxury vehicles, they can also afford the unsubsidized price of fuel. There is no need to offer them a subsidy. Instead, offer subsidies to the poor on their items of utility such as public transport.

In short, Georgieva is saying unambiguously that the facility of debt structuring is not available. To reduce debt and secure the IMF loan, Pakistan has to increase immediately its earning. The alternative choice is to reduce non-developmental expenditures including defence expenses.

The writer can be reached at qaisarrashid @yahoo.com.