Last Hope
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PAKISTAN doesnt need the International Monetary Fund; neither its loans nor its advice, nor its supervision, nor its intrusive monitoring.
At the moment, Pakistans foreign exchange reserves, which include previously lent IMF money, are sufficient, and while some international payments need to be made in the near future, adding more loans is certainly not the best way forward for an already heavily indebted country. What Pakistans economy needs is some clear thinking about substantial structural
reforms based on the consensus of political actors. For this, one doesnt need the IMF.
The need for the IMF arises when a country is nearing default, is in a crisis particularly with regard to its balance of payments, when it may default on international commitments, or as more recently, may have suffered on account of a financial crisis stemming from debts and loans, as experienced by some European countries, such as Greece, Spain and Iceland. Pakistans economy is nowhere near the crisis or default state in these countries, and, despite the false cries of crisis, is in far better shape. Pakistans economy has numerous problems, but it is not going to collapse in the near or even distant future.
Pakistan does not need the IMF to tell it what needs to be done. The issues and problems which affect the economy, are quite uncomplicated and commonplace. Issues related to the absence of revenue generation on account of an inequitable and inefficient taxation regime, which has been responsible for a high fiscal deficit and continuous and increasing reductions in public-sector development expenditure, is one of those central and perennial economic problems. Other issues related to the high and now chronic inflation over the last three years, are also not difficult to identify. Investment continues to be low and job creation is also lagging, affecting poverty and unemployment.
Some problems which afflict Pakistans economy are not related to economic fundamentals, and are due to political choices and arrangements made by the previous military regime in the way it took decisions related to the war on terror, the consequences of which this government and the people of Pakistan continue to face.
No measure of right-structuring of Pakistans economy is going to result in a quick and certain increase in the flow of investment, whether local or foreign. The problems of militancy or extremism, which have resulted in numerous and considerable economic problems, are not in the least related to bad economic management. It is not the IMF which can help Pakistan or its government resolve such issues which have consequences for the economy.
One has to give credit to the finance minister for raising the right types of issues which need to be addressed to deal with Pakistans structural economic problems. His numerous statements about raising taxes, particularly taxes arising from incomes from the agricultural sector, need to be taken seriously and repeated as many times as possible even if members of parliament fail to pass any legislation requiring such interventions. The finance minister might be a technocrat, but in a political environment, the basic rules of economics do not change. He should also be credited for saying something for which he has been admonished by parliament, that lawmakers in parliament were preventing the government from implementing tax reforms, and he is said to have scandalised parliament for speaking the truth, clearly a new development in parliament.
While his statements might have been appropriate and a constant reminder of what needs to be done, being one of the many legacies and continuities of the previous undemocratic Musharraf regime, the finance minister surely needs a quick course on how popular democracies work. He has failed to emphasise and highlight the importance of a finance minister in the cabinet at a time when there is urgent need for structural reforms, and rather than lead economic reforms, he has been reduced to being an accountant. His being a non-partisan technocrat, without any experience of democratic politics, may also be one of the reasons he carries no clout in this political government.
There is a long to-do list, which the Pakistan government and its finance ministry need to follow through, one by one, preferably through political consensus. One doesnt require the IMF to advise the Pakistan government that it needs to raise taxes on untaxed incomes to address numerous shortfalls which affect the economy. The finance minister is aware of this, and many other economists have also been writing on this issue. In fact, it is the IMF and numerous economists who have been giving the wrong sort of advice in supposedly helping Pakistan meet its revenue target. The IMF-supported Reformed General Sales Tax is an unfair and inequitable tax, as is the flood surcharge and other measures forced through by a presidential ordinance. Most of these measures penalise those who already pay taxes, not those who are out of the tax net.
In a democratic political order, it is the electorate that eventually decides on how well a government has performed, not op-ed writers or retired technocrats. Incumbent governments, more than anyone else, are cognisant of this fact, and hence need to take decisions which are good for the economy and for the people as well as for the electorate.
In a democracy, good technocratic advice depends on how politics plays itself out, and economic decisions will always be based on political choices and their consequences. One doesnt need the IMF to solve Pakistans economic problems, one needs competent political leadership.
The writer is a political economist.
At the moment, Pakistans foreign exchange reserves, which include previously lent IMF money, are sufficient, and while some international payments need to be made in the near future, adding more loans is certainly not the best way forward for an already heavily indebted country. What Pakistans economy needs is some clear thinking about substantial structural
reforms based on the consensus of political actors. For this, one doesnt need the IMF.
The need for the IMF arises when a country is nearing default, is in a crisis particularly with regard to its balance of payments, when it may default on international commitments, or as more recently, may have suffered on account of a financial crisis stemming from debts and loans, as experienced by some European countries, such as Greece, Spain and Iceland. Pakistans economy is nowhere near the crisis or default state in these countries, and, despite the false cries of crisis, is in far better shape. Pakistans economy has numerous problems, but it is not going to collapse in the near or even distant future.
Pakistan does not need the IMF to tell it what needs to be done. The issues and problems which affect the economy, are quite uncomplicated and commonplace. Issues related to the absence of revenue generation on account of an inequitable and inefficient taxation regime, which has been responsible for a high fiscal deficit and continuous and increasing reductions in public-sector development expenditure, is one of those central and perennial economic problems. Other issues related to the high and now chronic inflation over the last three years, are also not difficult to identify. Investment continues to be low and job creation is also lagging, affecting poverty and unemployment.
Some problems which afflict Pakistans economy are not related to economic fundamentals, and are due to political choices and arrangements made by the previous military regime in the way it took decisions related to the war on terror, the consequences of which this government and the people of Pakistan continue to face.
No measure of right-structuring of Pakistans economy is going to result in a quick and certain increase in the flow of investment, whether local or foreign. The problems of militancy or extremism, which have resulted in numerous and considerable economic problems, are not in the least related to bad economic management. It is not the IMF which can help Pakistan or its government resolve such issues which have consequences for the economy.
One has to give credit to the finance minister for raising the right types of issues which need to be addressed to deal with Pakistans structural economic problems. His numerous statements about raising taxes, particularly taxes arising from incomes from the agricultural sector, need to be taken seriously and repeated as many times as possible even if members of parliament fail to pass any legislation requiring such interventions. The finance minister might be a technocrat, but in a political environment, the basic rules of economics do not change. He should also be credited for saying something for which he has been admonished by parliament, that lawmakers in parliament were preventing the government from implementing tax reforms, and he is said to have scandalised parliament for speaking the truth, clearly a new development in parliament.
While his statements might have been appropriate and a constant reminder of what needs to be done, being one of the many legacies and continuities of the previous undemocratic Musharraf regime, the finance minister surely needs a quick course on how popular democracies work. He has failed to emphasise and highlight the importance of a finance minister in the cabinet at a time when there is urgent need for structural reforms, and rather than lead economic reforms, he has been reduced to being an accountant. His being a non-partisan technocrat, without any experience of democratic politics, may also be one of the reasons he carries no clout in this political government.
There is a long to-do list, which the Pakistan government and its finance ministry need to follow through, one by one, preferably through political consensus. One doesnt require the IMF to advise the Pakistan government that it needs to raise taxes on untaxed incomes to address numerous shortfalls which affect the economy. The finance minister is aware of this, and many other economists have also been writing on this issue. In fact, it is the IMF and numerous economists who have been giving the wrong sort of advice in supposedly helping Pakistan meet its revenue target. The IMF-supported Reformed General Sales Tax is an unfair and inequitable tax, as is the flood surcharge and other measures forced through by a presidential ordinance. Most of these measures penalise those who already pay taxes, not those who are out of the tax net.
In a democratic political order, it is the electorate that eventually decides on how well a government has performed, not op-ed writers or retired technocrats. Incumbent governments, more than anyone else, are cognisant of this fact, and hence need to take decisions which are good for the economy and for the people as well as for the electorate.
In a democracy, good technocratic advice depends on how politics plays itself out, and economic decisions will always be based on political choices and their consequences. One doesnt need the IMF to solve Pakistans economic problems, one needs competent political leadership.
The writer is a political economist.
