Govt-IMF on a collision course
On February 16, the Government of Pakistan and the IMF staff reached an agreement under which the Government of Pakistan promised to impose additional taxation of Rs1,200 billion.
Under the same agreement, the Government of Pakistan promised to impose an additional burden to the tune of Rs900 billion in the form of electricity tariff.
Under the same agreement, the Government of Pakistan promised to impose an additional ‘petroleum levy’ of Rs100 billion (jacking it up from Rs510 billion to Rs607 billion).
Under the same agreement, the Government of Pakistan promised to withdraw corporate tax exemptions in the amount of Rs140 billion.
On March 4, Bilawal Bhutto Zardari, Pakistan People’s Party Chairman, demanded Prime Minister Imran Khan “renegotiate the deal with the IMF in the larger interest of the nation.”
On March 24, the IMF Executive Board completed the “combined second through fifth reviews of the Extended Arrangement under the Extended Fund Facility (EFF).”
On March 29, PM Imran Khan sacked Dr Hafeez Shaikh, his second finance minister in 32 months, on the grounds of having failed at bringing in policies to control the “rising inflation”.
On March 30, the State Bank of Pakistan (SBP) received IMF’s tranche of $498.7 million.
On March 31, Hammad Azhar, the newly appointed finance minister, hinted at reviewing the IMF program.
On April 3, The Pakistan Business Council, a corporate advocacy forum, tweeted: “IMF prog. needs renegotiation.
Front-loaded tax targets without FBR’s capability to broaden the tax base; knee-jerk withdrawal of investment incentives; higher utility costs to manage circular debt will sap growth of the fragile economy, threaten jobs.”
The Government of Pakistan’s promise to impose additional taxation of Rs1,200 billion means an additional burden of Rs37,500 on each and every Pakistani family.
This promise is both infeasible and unimplementable. The Government of Pakistan’s promise to impose an additional burden to the tune of Rs900 billion in the form of electricity tariff means an additional burden of Rs33,000 on each and every electricity connection This could prove to be the single largest investment disincentive in our corporate history.The IMF is both an economic and a political entity. To be certain, the IMF is a crucial tool within the West’s ‘power projection’ arsenal. The United States by itself has 831,400 votes on the Board. Imagine, Andrew Baukol, America’s representative, raises just one hand and 831,400 votes go up.
The other side of the coin is that Pakistan has been living off other people’s money for too long. We continue to think that ‘we are too dangerous to fail’.
To be sure, ‘there is no such thing as a free lunch’-and we have been exchanging our sovereignty for their money.
Putting our ‘economic house’ in order is our responsibility-not IMF’s. The Federal Government must cut expenses, restructure Public Sector Enterprises and reform the electricity and the gas sectors.
The Federal Government must abolish ministries and departments especially the ones that have been devolved. Plus, the financial distributive aspects of the 18th Amendments would have to be revised.
Red alert: Our trade deficit is widening and our external account is deteriorating faster than a speeding train. Our gross external financing requirement this year stands at a colossal $30 billion.
At the same time, the election cycle is catching up and the PTI still lacks a credible economic team.
The PTI-led government now has little or no time left for reforms that are bound to be painful for potential voters.
On February 16, the PTI-led government agreed to increase the electricity tariff by 25 percent.
On March 30, SBP got $498.7 million. On April 12, PM Imran Khan rejected the hike in power tariff. On April 16, Shaukat Tareen was made the 4th finance minister.
Shaukat Tareen is of the opinion that “we made critical mistakes during [our] initial negotiations” with the IMF.
The IMF, on the other hand, is bent upon quarterly reviews of what are essentially unimplementable targets.
The PTI-led government is in an extremely difficult political stranglehold, trying awfully hard to conserve its fast-depleting political capital.
That’s like being stuck between the devil and the deep blue sea. The two-the government and the IMF-are clearly on a collision course.