The impasse in talks between Pakistan and the International Monetary Fund (IMF) and their deferment till January 2018, has received a mixed reaction in Pakistan. For many, this is a good omen. For others, it can lead Pakistan to more economic woes. The many-days-long debates were finally declared “inconclusive’ on November 20 2018, as both sides could not reconcile their differences on thorny issues like increase in electricity prices, interest rate, devaluation and enhanced tax collection targets etc. The IMF asked Pakistan to enhance the revenue target of the Federal Board of Revenue (FBR) by over Rs. 300 billion for the current fiscal year. According to a Press report, “Asad Umar and the IMF also had a difference of opinion on the transfer of resources to the provinces under the National Finance Commission (NFC) award”. IMF wanted provinces to pick the cost of stipends paid under the Benazir Income Support Programme (BISP).
Soon after coming into power, the Government of Tehreek-i-Insaf (PTI) invited IMF to review the possibility of another Extended Fund Facility (EFF) of US$8-12-billion. PTI adopted a two-pronged strategy: reaching out to friendly countries and also to seek an IMF’s bailout. So far, US$1 billion has been received from Saudi Arabia out of US$3 billion promised cash support in addition to deferred oil import payments of an equal amount for the next three years. Funds of over US$5 billion from China and United Arab Emirates are expected.
The main contentious issue between IMF and Pakistan has remained “full” disclosure of China-related debt obligations. Though our Finance Minister told the Herald Finger, head of IMF’s team, that “Pakistan believes in transparency and will not hide anything”, there remained suspicions on the part of IMF. Using various pretexts, Finger managed to defer the parleys. IMF showed inflexibility in its demand of a 22 percent further increase in electricity prices, increase in discount rate, further devaluation and increase in taxes. As the provincial governments categorically informed IMF that no proposal would be accepted for any reduction in the share of 57.5 percent from NFC Award, Asad Umar also prudently resisted undesirable demands of IMF — mainly because of firm assurances of support from China that is not to be disclosed publicly. China’s nuanced foreign policy does not cater to embarrassing its close friend for begging.
Since Ayub’s era, we are addicted to IMF’s bailouts — many call it death-blows. With every bailout a host of conditions come. These conditions, ostensibly meant for reforms, leave us in a deeper economic quagmire. The Musharraf-Shaukat duo hoodwinked the nation by claiming to sever all ties with IMF, whereas in reality heavy loans were secured. This undesirable trend continued unabated with unprecedented vigour under the PPP regime till May 2010, when to our great luck IMF suspended the programme due to the government’s serious lapses, and in turn saving Pakistan from further indebtedness. The third time government of Nawaz Sharif set new records of borrowing at home and abroad.
Ishaq Dar in a news conference on August 26, 2013 revealed that Pakistan had no option but to borrow $12 billion “to retire its previous debts.” In 2019, the same is the dilemma of the PTI Government. In 2013, Dar informed the nation that the “most vital precondition” of IMF for broadening of tax base was fulfilled as the FBR issued 15,000 notices to “potential tax dodgers.” The same is Asad Umar’s stance!
Failure of FBR is a big issue. It goes after the small fry and protects the big fish. The protectors of big fish are part of the newly-formed Policy Board by PTI Government! Two ex-Chairmen of FBR during their tenures committed figure fudging to show higher collections. What a mockery that a new member was made part of the reconstituted Tax Reforms Implementation Committee by Asad Umar, at the insistence of Jahangir Khan Tareen, who is an alleged abettor of infamous tax evaders. Even under the PTI’s regime, FBR is using all negative tactics to show higher figures. Large Taxpayer Units (LTUs) and Regional Tax Offices (RTOs) are withholding sales tax refunds of billions since July 2013. They also press for advance tax from banks and other large companies etc.
If key to debt retirement is to raise tax revenues, the issue is why tax-free perks and benefits are still available to the State Oligarchy — militro-judicial-civil complex
The IMF, though fully aware of dirty tricks of FBR, has been intentionally overlooking it. It was party to Ishaq Dar’s shenanigans of destroying Pakistan’s economy, giving him relaxations and ignoring figure fudging etc. PTI’s real dilemma is that it has failed to break the indomitable mafia inside FBR that is the main stumbling block for the fulfilment of Imran Khan’s dream of achieving a target of Rs. 8 trillion to get out of debt enslavement. IMF does not want it, thus, it is demanding the revenue collection of only Rs 4.7 trillion!
By this time it is clear that the PTI Government has no coherent programme and strategy to reform FBR, overcome the ever-increasing internal and external debts, fiscal deficit, inflation, the balance of payments pressure and unfavourable trade imbalances. If key to debt retirement is to raise tax revenues, the issue is why tax-free perks and benefits are still available to the State Oligarchy — militro-judicial-civil complex.
Today’s Pakistan represents a State where hierarchy of the civil-military bureaucracy, politicians and top businessmen are affluent, but the Government is poor and incurring more and more debts to even meet day to day expenses. This state of affairs is the direct outcome of policies to appease tax evaders, giving tax-free perks to the mighty judges, generals, and allowing a free hand to the forces who loot. If we sincerely want to come out of debt enslavement, these policies will have to end.
Pakistan served as an experimental ground in the hands of foreign donors to see how effective their strategy can be in enslaving resource-rich countries. Their experiment has produced positive results as Pakistani rulers co-operated beyond their expectations — now they are applying the same tactics in many other countries. Pakistan leadership — both civil and military — has proved incompetent and weak. During the Afghan war against Soviet occupation, Pakistan became a victim of narco-money destroying its political, social and economic fabric. In post 9/11 scenario, toeing the US-NATO policies and supporting their physical occupation in Afghanistan engulfed the country in the New Great Game unleashed by US and its allies.
Pakistan is a classic study as to how a nuclear State can successfully be ensnared in a deadly debt trap leading to political subjugation. It is, therefore, not surprising that all governments, including the present one, run from pillar to post for bailouts. The solutions to end the debt trap is discussed in detail in Pakistan: Drug-trap to Debt-trap but who cares!
The writer, Advocate Supreme Court, is Adjunct Faculty at LUMS. Email:[email protected]; Twitter: @drikramulhaq
Published in Daily Times, November 25th 2018.