Daily Times

It may appear to the many that yet another farewell to IMF is around the corner. But this time, it is unprecedented situation, as the decision makers are straining every nerve to seek some benign remedy before taking the ‘bitter pill’ with side effects.

The PTI government has been greeted with adverse economic indicators like external debt of US $ 96 billion, debt to GDP ratio of 6.20%, current account deficit extending to US $ 18 billion as imports for Chinese financed projects far exceed exports, circular debt accumulating to Rs.1.2 trillion, fiscal deficit hiking to 6.6% of GDP and the dwindling foreign exchange reserve at around US $ 8 billion.

These chronic economic conditions have every time forced the successive governments to resort to the international lender International Monetary Fund. The incumbent regime was also in dire need of US $ 12 billion to get through economic woes but it opted out to seek financial help from the friendly states first. Consequently, Saudi Arabia directly transferred US $ 3 billion in SBP to improve balance of payment position besides committing US $ 3 billion deferred payment facility to facilitate oil imports. Similar sort of relief from China is also in process. These arrangements have, reportedly, scaled down requirement of Pakistan to over US $8 billion from IMF, as its 13th bailout since 1980s.

Last round of talks with the IMF delegation concluded on November 20 that witnessed a stalemate over the tough conditionalities. IMF has been reported to propose very tough conditions like addition to electricity tariff, hike in interest rate, rise in tax revenue targets, a definite plan to permanently clear circular debt of power sector, assigning authority to an independent power regulator to set electricity tariff and disclosure by Pakistan about Chinese financial relief. The IMF officials have also been reported to be critical over the prevailing fiscal federalism whereby the lucrative taxes have been transferred to the provinces. It has also suggested an entire market based free floated exchange rate system without any intervention of the SBP. Finance Ministry has acknowledged that the sides are still at odds over certain issues. As usual, IMF expects more than the new government has the leverage to manage.

Still, the Finance Ministry claims that a considerable progress has been made by the government of Pakistan and the IMF towards common understanding on structural reform framework. Therefore, some positive outcome can be anticipated.

However, in order to stage a real farewell to IMF, the present government must carry out the following structural initiatives to achieve long term economic stabilization:

1. Tax revenue system should be modernized by widening the tax base, including the ‘holy cows’ in tax net and arresting tax corruption.

2. Arrangements of fiscal federalism must be balanced.

3. The government can learn from Malaysia how public enterprises were run successfully by putting them under a holding company to eliminate all losses & governance issues.

4. In order to attract maximum foreign direct investment, ‘ease for doing business’ must be institutionalized.

5. Momentum for crusade against corruption should be increased. The upcoming ‘Whistle Blowing Act’ could be handy in this regard.

6. Keeping in view the current national issues, legislation for anti-money laundering and combating terrorism financing must be revised/revisited. It is also essential to tackle FATF proceedings.

7. Foreign remittances should be promoted by eradicating hundi and hawala. This would directly boost our foreign exchange reserves.

8. A comprehensive export strategy is required to be established by removing all pre-shipment and post-shipment difficulties.

9. The government must foster the economic inclusion of the youth, women and the poor in order to maximize the gross domestic product.

10. Policies must be focused on a growth path that is characterized by sustainable job creation.

A visionary leadership is at the helm of our country that can foresee the dividends of a robust economy. With the fore-cited structural reforms, Pakistan would no more be subject to hard choices and tough measures of financial dependence. This would automatically lead to the assertion of national sovereignty.

Published in Daily Times, December 7^th 2018.