In the wake of meeting in Dubai on February 10, 2019 between Prime Minister Imran Khan and Christine Lagarde, Managing Director of the International Monetary Fund (IMF), there was a mood of jubilation in official and business circles, summed up by the Federal Finance Minister as: “We are close to signing an agreement for economic assistance package…” Mr. Asad Umar, while addressing a ceremony at Chamber of Commerce and Industry in Peshawar on February 11, 2019 said that “after getting assurances from Prime Minister for undertaking structural reforms, IMF’s Managing Director reiterated the Fund’s readiness to support Pakistan”. This statement, many claimed, finally ended the prevailing “uncertainty” that elicited wide criticism for the last six months. The very next day, however, stock exchange lost 542 points and rupee fell further against dollar! This exposed the tall claims of businessmen/analysts that “uncertainty” of going or not going to IMF, created by the government of Pakistan Tahreek-i-Insaf (PTI), was the real impediment for economic revival!
Economist Nadeem Ul Haque observed that “the government should have gone immediately to IMF after coming to power. The reason is simple and lies in an understanding of the global architecture. The IMF by global consensus is the lender of last resort. Its blessings and certification are necessary for continuation of aid flows and retaining confidence of international markets”. He also raised a fundamental question: “Pakistan has been in an IMF program repeatedly. Over 32 years in the last 40 and yet had achieved no lasting solution to its deficit problem. Yes, IMF programs have been expedient and unwilling to touch deeper structural issues. That is the IMF fault! But all our governments have also not been ready to take any tough decision. They have always been eager for begging rather than solving problems”. Nadeem Ul Haque has candidly concluded: “Pakistan is an IMF addict-we have had 12 to 13 IMF programmes in the last 30 years and have spent more than 22 years on a programme (more, if you count the monitoring stage). So, what will change with another programme? Will both Pakistan and the IMF repeat their past performance and prove their insanity, as per Einstein’s maxim”.
In its first 6 months the Imran Khan government has been unable to resolve the question “to go or not to go to the IMF.” All manner of laughable statements have come out of the economic leaders in the government and their advisers. “We don’t need to go to the IMF if we ban cheese.” “We can borrow our way out of our problems for our problems are only current financing.” “With Borrowing, IMF will reduce any conditions.” These statements merely show the lack of understanding of the IMF in the government- Nadeem Ul Haque, To go or not to go to the IMF
In March 2018, the IMF assessed Pakistan’s gross external financing needs at a record $27 billion and warned that arranging financing at favourable rates “will now be a challenge due to risks to the country’s debt sustainability” but financial managers of PMLN ignored it with impunity. The IMF also forecast that due to additional borrowings, Pakistan’s external debt would jump to $103.4 billion by June 2019. Of course, the PTI Government was not held responsible for this sorry state of affairs, but criticism was why did it unnecessary delay the decision of going to IMF the in the absence of any solid alternate plan.
The perpetual failure to tap the actual tax potential has forced successive governments to rely more and more on external and internal borrowings, pushing the country into a ‘debt prison’. In the first seven months of the current fiscal year, the Federal Board of Revenue (FBR) collected Rs. 2060 billion registering the lowest revenue growth rate of 3.2% in 20 years. Before coming into power, PTI claimed it would double FBR’s collection to Rs. 8000 billion. On the contrary, the Government reduced FBR’s target to Rs. 4398 billion from Rs. 4435 billion. FBR reportedly says even this would be difficult and final collection would be around Rs. 4100 billion.
The pathetic revenue growth of 3.2% is far below the nominal economic growth of over 11%. This has raised serious questions about the ability of PTI Government to restructure the tax system for enhancing revenues to decrease burgeoning fiscal deficit. Even in the second mini-budget of January 23, 2019, there is nothing to tax the rich and mighty. Taxes are byproduct of economic growth and PTI should not impose further oppressive taxes even if suggested by IMF. New vistas of non-tax revenues should be explored by making locked assets productive, ending circular debt and losses in Public Sector Enterprises, and drastic cut in wasteful non-development expenditure.
Are we ready to put our house in order through fundamental structural reforms? Nadeem Ul Haque has very rightly pointed out: “The IMF or no donor or external friend can help us with putting our house in order. We have to build a modern state and a modern society that is responsible and ready to participate in the global economy of the 21stcentury. Without that we will continue to bleed and require the IMF again and again”.
Let us take the example of Finland, a small country of 5.5 million people with GDP of US$ 252 billion (Pakistan with population of 210 million has GDP of around US$ 305 billion). In 2017, Finland’s tax-to-GDP ratio was 44% and ours only 11.5%. Unfair taxation is the biggest impediment in the way of economic and industrial growth. What a tragedy that the rich and mighty get VIP facilities, plots, perks and benefits at taxpayers’ expense. They are the beneficiaries of State’s resources-generated mainly by the poot farmers, suppressed landless tillers and toiling industrial workers. Pakistan is not a poor country-State’s kitty is empty because of unwillingness of the rich to pay due taxes, collossal wastage of taxpayers’ money on unproductive expenses and non-exploitation of vital natural and human resources.
The absentee landlords (they also include mighty generals who have been allotted State lands under award and rewards) have been resisting proper personal taxation on their enormous income and wealth. The anti-people alliance of militro-judicial-civil complex, corrupt and inefficient politicians and greedy businessmen controlling and enjoying at least 90% the State resources contribute less than 2% towards national revenue collection and nobody talks about it. We can easily generate taxes of Rs. 10 trillion through FBR alone [Towards Flat, Low-rate, Broad and Predictable Taxes, PRIME Institute, April 2016]. The dire need in today’s Pakistan is rapid industralisation, especially promoting agro-based units to provide employments to poor rural population and ensure fair distribution of resources to reduce inequalities. The IMF or any other donor will not tell us how to achieve these goals. We will have to promote research to find our own solutions to become a modern and dynamic nation as pleaded by Dr. Nadeem Ul Haque and many others.
The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)
Published in Daily Times, February 17th 2019.