The International Monetary Fund(IMF) has issued Pakistan’s economic scorecard, predicting a near term crisis if the policymakers of the country do not pay heed to the issues inflicting the country. Of the many crises pulling the country down financially, security, the energy crisis, law and order and institutional imbalance stand out. The report says that the impending drawdown of US-led NATO forces from Afghanistan in 2014 could trigger a new spate of Taliban assaults that could jeopardize the economy as investment could shrink further and GDP growth decline. With the dearth of foreign and domestic investors taking its toll, the budget deficit would climb up to eight percent, pushing more people below the poverty line as double digit inflation sets in. Barely a month in office and with stark economic realities staring it hard in the face, the government had little option but to reach out to the international lending agencies for funds to replenish its diminishing financial coffers. Under the new agreement, the IMF will give Pakistan $ 6.7 billion over the next three years. The first tranche of the loan has been released early this month to the tune of $ 540 million. In the absence of this programme, Pakistan ran the risk of suffering a balance of payments crisis. Based on past experience, the real challenge before the government will be to implement the IMF’s conditionalities, without which this Extended Fund Facility too could suffer the same fate as earlier IMF programmes. These conditionalities call for widening the tax base, bringing tax evaders into the tax net and pushing the underpayers to pay fully. Even now these issues stands unresolved and unless the government is determined to do things differently, the country will not come out of its economic disasters as predicted by theIMF that sees Pakistan’s economy at high risk in the near future. Quarterly IMF reviews will determine the release of future tranches.
There is no gainsaying the fact that Pakistan with a three percent economic growth rate is standing on the edge. In order to provide a decent living to its people and to fully absorb the growing labour force, Pakistan requires at least seven percent growth. Even that looks improbable in the near future as Pakistan enforces austerity measures conditioned by the IMF. What we are looking at is economic contraction for the short term as investment bogs down and growth slows. But this short-term pain could eventually get the economy’s essentials right, provided the government implements the hard but critical decisions.
One of the important decisions is to bridge the fiscal deficit which the Finance Minister has committed to reduce to 4.5 percent of GDP over a period of three years. However, this commitment would require sounds actions in improving tax collection, reversing the energy deficit and plugging the drain on the exchequer from Public Sector Enterprises (PSE). The track record of the Federal Board of Revenue has been unsatisfactory over the past few years. Failing to put into effect the necessary measures, it incurred a shortfall of almost Rs 300 billion in its own target for 2012-13. To the IMF this had been a major policy flaw, in fact reneging on a commitment by the previous government given when securing the last loan of $ 11 billion. The shortfall reflects the inability or worse the weakness of the government to govern the ungoverned. As far as the PSEs are concerned, they had remained storehouses of political employment and depending on the government’s bailout plans to survive. For the energy sector, the IMF has again asked the government to drop costly subsidies. Electricity tariffs have already been increased, to make up the cost incurred on paying the circular debt.
However, these measures should translate into long term economic prosperity for which the government should stem the wave of terrorism and the long running energy crisis. The IMF report expressed concern over the sectarian violence in Balochistan and street crimes in Karachi. We are hard put to build any case in our favour. Let’s hope we put down our old binoculars and see things anew with a fresh perspective. We should pursue implementing agricultural tax and documenting the informal economy. Tough as the situation is, our future depends on making the hard choices. *