KARACHI: Pakistan will possibly suffer if it leaves International Monetary Fund (IMF) programme given the multifarious economic difficulties to balance macro and micro situation on more than one count.
Asad Umar, the next proposed finance minister of the country, had already indicated that it was inevitable to go for an IMF bailout package to around $15-$20 billion in order to support shambling economy on immediate basis.
Also, interim Finance Minister Dr Shamshad Akhtar had said that seeking an IMF bailout package was the only option available.
It may be mentioned that in the presence of the IMF programme, the Gross Domestic Product (GDP) growth can increase to 6.5 percent and in absence of this programme, GDP growth is likely to decline from present 5.2 percent for the next nine months during the current fiscal year. Pakistan’s medium-term growth outlook can be improved by ensuring significant increase in tax to GDP ratio to 6.5 percent.
Fazal Ahmad, an economic expert at a private institution in Houston, said that the incoming government would be asked to take measures in connection with implementing benchmarks to be laid down by the IMF.
He opined that continued downward rally of the Pakistani rupee against the US dollar had greatly contributed to Pakistan’s meeting all prior conditions of the IMF for release of funds.
“There would likely be demand for implementation of key benchmarks in case of an agreement with the IMF like bringing central bank’s borrowing to a desired limit, enforcing general sales tax on goods and services in integrated mode, eliminating power sector subsidies and keeping the budget deficit within agreed limits.”
He continued: “Pakistan is facing low-tax mobilisation, inability to realise budgeted revenues and soaring power subsidies have resulted. Additionally, the IMF could seek amendments to State Bank of Pakistan Act in order to provide central bank with operational independence.”
He added that privatisation of state-owned entities could also come under discussion in case of talks between the two sides.
Since March 2008, according to currency experts, the rupee had lost 102 percent of its value against the dollar. The country has hardly two-and-a-half months import bill amount, which it has to provide in shape of L/Cs, food import bills, edible oil import bills and crude oil bills.
Absence of foreign inflows in economy and higher tendency in non-productive expenditures by government on political grounds has been affecting rupee value negatively, said experts.
Moreover, the fundamental weakness in the balance of payments is the continuous decline in net capital and financial flows, while the external debt-to-exports ratio has already surged to 350 percent in 2017-18.
There would be a herculean task for the incoming government to control the rampant tax evasion, besides a vast network of special treatments and exemptions backed up by powerful vested interests.
Access to finance is a major constraint impeding private sector development in Pakistan. Pakistan’s microfinance penetration is among the lowest in Asia at nearly 2 percent,, while 90 percent of small and medium enterprises lack access to finance.
Enhancing domestic revenue mobilisation will be an urgent priority. To address chronic under funding of key services and avoid episodic crises, tax revenue needs to be substantially increased. Otherwise, targeted improvements in social indicators and physical infrastructure will remain unaffordable.
Availability of electricity is currently considered to be the main constraint to economic activities. The sector is currently facing a huge gap between supply and demand leading to widespread load shedding and forcing many firms to invest in captive supply. One in every six firms identifies power as a major or severe obstacle to business, while only 65 percent of households have access to electricity.
Despite improvements in the business, governance interface, firms’ perception of corruption and crime have worsened between 2002 and 2017, percentage of firms citing corruption as a major constraint to doing business rose from 50 to 57. Overall, almost half of all Pakistani firms reported at least one incident of bribery.
Pakistan’s extensive irrigation system, one of the largest in the world, is under stress as a result of growing demand, deteriorating infrastructure and poor governance. The weak performance of Pakistan irrigation and drainage sector reflects major underlying institutional weaknesses.
It is believed that if economic recovery under new government shows some positive indications during the first two years, prospect for resumption of further financial assistance by other international donors can be matured.
However, there is a possibility that rupee and forex reserves can come under pressure when Pakistan will go for repay.
Agha Saddain of tanners sector, Jawed Bilwani of apparel sector, Ghulam Rabbani of yarn and cotton sector, Sanaullah Khan of onyx sector and representatives of trade bodies, while imposing confidence in incoming PTI government, have maintained that recovery of Pakistan’s economy is possible on a fast track basis if export-oriented and industrial sector are given level playing field on a par with those being enjoyed by their regional competitors.
“A close liaison of finance and commerce ministries with businessmen on making policies will produce positive results. Prime exports of textile and leather goods of the country can achieve export target of $35 billion and $30 billion, respectively, within next five years if incoming government gives serious consideration on exporters’ suggestions,” they opined.
Published in Daily Times, August 9th 2018.