Daily Times

As was mentioned in the first of this two-part series on Pakistan’s economy, our worthy finance minister appears to go to any length to tout his extraordinary achievements on the economic front. However, the fact remains that the debt burden of Pakistan — both internal and external — has increased during the last decade at an alarming rate.

In his address at the National Debt Conference, organised in Islamabad on November 12, 2016, by Policy Research Institute of Market Economy (PRIME), Ministry of Finance debtoffice former director general Dr Ashfaque Hassan Khan said that Pakistan was rapidly heading towards a serious debt trap “as the country’s external debt is projected to swell up to $110 billion till 2020, posing a threatening situation with no option but to go back to the IMF to avoid default”. Dr Ashfaque said that due to the low level of exports, “Pakistan’s external debt to export ratio has been projected at 441.8 percent by 2019-20, which is highly unsustainable”. He also went on to explain that the current account “deficit will be widened due to the import of machinery and plants for CPEC projects. After exhausting all available resources, including CPEC financing, foreign investment and traditional donors, there will be still $11 billion financing gap, which the country would not be able to meet without the IMF help”.

He has also predicted that Pakistan would return to the IMF in the fiscal year 2018-19 with a predicted external debt of at least $98 billion; it’s financing gap swelling to $9 billion.

Yet, there are many who support the views of the finance minister. Pakistan Institute of Development Economics (PIDE) Research Economist, Dr Ali Kemal, also believes that Pakistan can keep its debt at a sustainable level by achieving about six percent annual economic growth rate. He is of the view that despite an increase in debt levels, “Pakistan is still not Greece.”

The doomsday scenario vis-à-vis debt sustainability is not convincing any longer. Huge refunds are being injected into the economy, and with improved infrastructure and energy availability, the economy might grow at more than six percent for a long time, enabling the debt repayments without any fear of default. The real concern, however, is the continuation of the elitist structure of the economy that denies the vast majority the real benefits of economic fruits. The same will be the case for CPEC and other projects if these structures are not dismantled and fundamental structural reforms are not undertaken.

Pakistan represents a state where the rich include in their ranks members of the military-judicial-civil complex, businessmen-turned-politicians, and absentee landlords. However, more than 60 million of our population continues to face the curse of abject poverty. This state of affairs is the direct outcome of policies of successive governments — military and civil alike — that allow a free hand to the forces of loot and corruption. Behind the present chaotic situation in Pakistan is an oppressive tax system that is hampering growth and encouraging the underground economy. It is shocking that with every passing day, more and more people are being pushed below the poverty line whereas the ruling elites spend billions on their personal comfort and in the name of security.

The government’s unabated borrowing to meet the burgeoning budgetary deficit is one of the major weaknesses of its economic governance coupled with the unchecked spending on monstrous government machinery and inefficient PSEs. There is no scarcity of resources — as propagated by the rulers to shift blame on others. However, all issues are related to a lack of management on the part of political leadership and bureaucracy. Failure to harness the real tax potential of Rs 10 trillion is the main issue, as has been discussed in great detail in a research paper, Towards Flat, Low-rate, Broad & Predictable Taxes’, by the Prime Institute, a public policy think tank.

We cannot come out of debt-enslavement and achieve prosperity for all unless we adhere to the principle enshrined in Article 3 of the Constitution — from each according to his ability, to each according to his work. To implement it, everyone should be given work and a fair reward. We need a paradigm shift in the style of governance — the president, governors, the prime minister, chief ministers, ministers, parliamentarians, and high-ranking government officials should all be offered a ‘consolidated pay’ liable to tax, just like the income of an ordinary citizen. Palatial residences occupied by them should be sold or converted into income-yielding assets, and all perquisites of civil servants and public office-holders should be monetized. The country will be pushed further into debt incarceration and the rich-poor divide will worsen if we don’t immediately discontinue policies that lead to oppressive taxation and rising imports and declining exports, as well as discourage practices like wastage and non-utilisation of resources and appeasement of tax evaders, money launderers, and plunderers of national wealth.

The writer is Advocate Supreme Court and Adjunct Faculty at Lahore University of Management Sciences (LUMS) and can be reached at ikram@huzaimaikram.com. He tweets @drikramulhaq