Federal Finance Minister Asad Umar while responding to concerns raised in the Senate stated that the government had worked out that it would need to borrow 9 billion dollars to manage the national economy and had yet to decide whether to seek an International Monetary Fund (IMF) bailout package but added that if it decides to seek one, it would not be the first but the 13th time. Pakistan has been referred to as a perennial borrower by some IMF staff members on condition of anonymity and it is indeed unfortunate that in our 71-year history, 12 bailout packages, average duration three years, were taken by Pakistani administrations.
Critics of the IMF, and there are quite a number, may argue that Pakistan’s experience indicates that multilateral bailout packages in general and the IMF packages in particular, with their associated rigid and politically challenging conditions, do not lead to a country graduating out of the debt trap. The last IMF bailout package procured by the PML-N administration in 2013 for three years was focused on raising revenue, rather than on reforming an unfair, inequitable and anomalous tax system, which implied raising taxes on existing taxpayers, relying heavily on procuring loans from external sources to shore up foreign exchange reserves (external debt of 30 billion dollars was incurred during the past five years) while keeping the rupee overvalued that led to declining exports while imports becoming more attractive leading to a current account deficit of 18 billion dollars. Ishaq Dar, the then Finance Minister, must be held responsible for these flawed policy decisions but given that the country was on an IMF programme at the time, with ongoing rigid quarterly monitoring by Fund staff, the Fund mission leader must bear part of the responsibility for these flawed policy decisions.
Be that as it may, independent economists have consistently pointed out that the fault for policy decisions lies with successive Pakistani administrations who failed to undertake institutional reforms or formulate and implement policies focused on reducing the deficit through reforming the tax system and its administration and decreasing current as opposed to development expenditure; reducing reliance on domestic and external borrowing, reforming the civil service, and last but not least, shutting down avenues of corruption, nepotism, capital flight and money laundering.
For the newly-installed PTI administration, the challenges therefore are myriad. To date, the unrealistic and politically motivated budget for 2018-19 continues to be implemented in terms of revenue and expenditure priorities, which is narrowing the revenue base each month and, at the same time, allocating funds for projects that are not Pakistan Tehreek-e-Insaf’s (PTI’s) priorities as indicated in its manifesto which, in turn, is increasing the budget deficit each month. Two months of the current year have already passed and any further delay in implementing corrective measures would simply increase the burden on the country and its people during the remaining 10 months of the year.
Asad Umar stated in the Senate that the government would announce reforms in the tax measures contained in the Finance Bill 2018 next week, which would require approval from the parliament. One would assume that an attempt would be made to raise revenue - the budget for 2018-19 envisaged a decline of around 91 billion rupees as per the Federal Board of Revenue – through improved FBR governance and a tax structure which does not tax the already taxed as was evident during the past five years. In addition, the cabinet has decided to cut down on its own expenditure through reducing its perks and privileges and banned all discretionary grants by the President, Prime Minister, federal cabinet members and members of the National Assembly. These measures are designed to contain the budget deficit but much more needs to be done given the appalling state of the economy with a deficit higher than 8 percent according to independent economists, dwindling foreign exchange reserves and an alarmingly high current account deficit.
To conclude, there is a need to take mitigating measures on an emergent basis and while one may appreciate the fact that the PTI government is treading slowly and carefully after debate yet the luxury of a lot of time is not available to it. While reforms are required in nearly all areas of government activity, yet revenue generating and expenditure containing measures must be announced soon that would strengthen the government’s negotiating position if it decides to seek another IMF package, which economists maintain is the only viable option.
