Daily Times

After dilly dallying on the issue since he got into power last August, Prime Minister Imran Khan has finally proceeded to do what should have been done earlier. He has held a meeting with the International Monetary Fund (IMF) managing director on the contours of a financial package – 13th structural adjustment programme of the country since it first went to the Fund in 1980s. His critics have posited that if the government was eventually going to opt for the programme, what was the need for the delay, because it led to several bouts of uncertainty in the stocks market and also adversely impacted the exchange rate. Alongside, the delay also reflected upon the lack of coherence and planning with the policy making circles of the ruling party which had come to power in the July 2018 general election after having raised public expectations of an economic turnaround to an unrealistic extent.

Now that the PTI government seems to have taken a decision on the matter, it is important for it to bear in mind the mistakes of the previous administrations when they entered into similar arrangements with the lender of the last resort. The PM and his finance team would also do well to learn lessons from instances where the country was able to successfully wrap up individual programmes. Ultimately, the success of the programme will depend upon the government’s ability to steer internal reforms. That is where hard policy choices will need to be taken, and this will begin with controlling the fiscal deficit, either through a reduction in current expenditures or through a boost to revenue generation capability. Since it has assumed office, the PTI government has so far restricted its attempts at fiscal disciple to the expenditure side. It has overseen an austerity programme, too small in scale, nonetheless, given it doesn’t extend to the biggest item in the current expenditure: defence; and attempts have been made, rather callously, to slash development spending.

No ambitious plans have yet been presented by the government to boost the revenue generation capacity of state institutions. Going forward, therefore, the two areas that must be paid attention to in terms of promoting fiscal discipline in the public sector are the defence spending component in the current expenditure and revenue generation. The latter requires bringing untaxed elites (big farmers, commercial and industrial interests in the agriculture value chain, private medical practitioners, the real estate sector, etc) into the tax net and expanding state’s regulatory powers over the large swathes of retail and wholesale enterprise still in the informal sector.

Finally, both politically and ethically, the government must ensure that the adverse effects of the conditions imposed by the Fund are not passed on to those in the bottom rung in terms of income- and asset- distribution. *

Published in Daily Times, February 13^th 2019.