Adieu to IMF programme?

News & Views

Mohammad Jamil

Chairing a meeting in Islamabad on Friday, Finance Minister Ishaq Dar reportedly said that the budget deficit has been brought down to 4.3 percent from 8.8 percent while revenue collection has witnessed a growth of 19 percent this year due to better fiscal management. He claimed that inflation rate stood below four percent; but looking at the phenomenal increase in the prices of pulses and other edibles together with the existing utilities tariffs one would not agree with his contention. Last month, while appreciating the government’s progress on fiscal front, the visiting IMF director did raise concerns over a delay in privatisation and its implications on the budget, said finance ministry officials who attended the meeting. The IMF director also inquired about the strategy to reduce energy sector losses, as the government has also shelved the privatisation of power distribution companies.
The IMF had observed that Pakistan’s economic indicators are improving with increase in Gross Domestic Product (GDP) and inflation on a downward trajectory. However, the IMF among other directions has been asking the government that State Bank of Pakistan be given more autonomy and that the electricity tariff should be rationalised. One can infer from this statement that the IMF wants that electricity tariff should be revised upwards. But this will result in inflation, which will further adversely impact the common man, and also increase the cost of production for the industry. It has to be mentioned that Gross Domestic Product (GDP) growth indicates the general health of the economy; and there is a consensus in economists that increase in GDP does not necessarily mean welfare of the masses. In fact, in the absence of socio-economic justice the rich become richer and poor become poorer.
Secondly, Pakistan continues to face trade deficit and current account deficit, as Pakistani imports are around $44 billion and exports hover around $24 billion; hence a trade deficit of $20 billion. After taking into account the remittances of expatriate Pakistanis to the tune of $18 billion, the current account deficit is $ 2 billion. Thirdly, Pakistan’s revenue receipts (Tax and non-tax) in 2014-15 were Rs. 3946 billion and revenue expenditure budget are Rs. 3901 showing a deficit of about Rs. 800 billion. And the government had to take loans to meet the deficit. The problem is that rate of savings is about 11 per cent, as inflation hinders the capacity to save, as it erodes the incomes of the people, especially salaried class and fixed income groups. However, the most serious aspect of our dire economic situation is the growing public debt, which has to be paid one day.
It was due to the accumulation of debt-mountain that Pakistan had to allocate around Rs. 1325 billion for debt-servicing alone. It is unfortunate that despite being a resourceful country, Pakistan has been able to pile up such a huge public debt. In fact, we have been producing less and consuming more; earning less and spending more. It should be borne in mind that the magnitude of the public debt limits the fiscal space to invest in human development, in infrastructure, and to enhance capacity to build strong defence. The threats faced by Pakistan have to be understood in the light of fast changing regional and international situation, which add urgency to revive the economy so that adequate resources could be allocated to defend Pakistan’s integrity and sovereignty. It is painful to note that every government in Pakistan continued to take loans by accepting and complying with harsh IMF conditions.
Increase in the rates of utilities produces ‘the multiplier effect’, leading to cost-push inflation making it impossible for the local producers to compete in the world market. In the domestic market, people have to pay more for everything, which erodes the incomes of salaried class and fixed income groups, pushing more and more people below the poverty line. But this crisis is of our own making, as corruption has eaten into the vitals of the nation. The government should therefore restructure the public sector enterprises because on the average these state enterprises are causing of loss of more than Rs. 500 billion per year, in addition to wastages, corruption, loot and plunder in other government departments, which is estimated around Rs.1000 billion per year. If the government feels that it cannot make public sector enterprises profitable, then privatise them through transparent mechanism.
Last but not the least; imports should be rationalised so that foreign exchange is not wasted on non-essential imports. To avert the economic disaster, the government must show zero-tolerance to corruption, tax evasion, wastages and mismanagement in public sector enterprises. It should learn to live within its means and reduce the non-development expenditure by curtailing perks and privileges of cabinet members and parliamentarians. In the past, in a quest to balance the budget or to keep the fiscal deficit within reasonable limits, the axe always fell on development expenditure. Now, Pakistan will have to allocate more for debt servicing, for one on increased amount of debt, and secondly payments of installments that will be due for payment from the next year. In the presence of hostile neighbours, Pakistan perforce will have to allocate more for defence to ward off external threats.
Economic experts have long been anticipating that Pakistan will not seek another programme, as the government would like to have greater fiscal liberty to spend ahead of 2018 general elections. While making his intentions public about the future of Pakistan-IMF relations, Ishaq Dar cautioned that “the country needs to work hard to consolidate the economic gains of the past three years.” He said the country has to attain 8% economic growth rate, as the current pace was not sufficient to create the required number of jobs. He said Pakistan has achieved fiscal and monetary stability, and the country has sufficient foreign currency reserves to finance over four months’ import bills, which in 2013 were not enough to even finance few days’ import bill. It has to be mentioned that unless there is increase in exports, Pakistan will not be able to remove the current account deficit.
—The writer is a senior journalist based in Lahore.

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