Dr. Ikramul Haq
According to Press Release No. 21/83, issued by International Monetary Fund (IMF) on March 24, 2021, “its Executive Board completed the “combined second through fifth reviews of the Extended Arrangement under the Extended Fund Facility (EFF) for Pakistan, allowing for an immediate purchase equivalent to about US$500 million for budget support”. The IMF programme is, thus, revived after suspension about one year. According to all experts, it is the most stringent programme Pakistan ever had.
The IMF while appreciating fiscal performance in the first six months of the current fiscal year, monetary policy (where Government borrowed Rs. 171 billion alone for defence needs) and “strengthening of the State Bank of Pakistan’s autonomy and governance” (strongly condemned by many) says: “Despite recent improvements, further efforts to remove structural impediments will strengthen economic productivity, confidence, and private sector investment. These include measures to (i) bolster the governance, transparency, and efficiency of the vast SOE sector; (ii) boost the business environment and job creation; and (iii) foster governance and strengthen the effectiveness of anti-corruption institutions. Also, completing the much-advanced action plan on AML/CFT is essential.”
According to a report, the coalition Government of Pakistan Tehreek-i-Insaf (PTI) for the revival of programme, “finally conceded to slap Rs. 140 billion in taxes” that “was a prior condition by the IMF”. It says: “The government also increased electricity prices by 16% in February and a commitment to further increase tariffs by 36% in six months (April-October 2021)”. The Federal Cabinet on March 16, 2021 “approved the promulgation of an ordinance aimed at preparing a legal path to increase power tariff by a minimum of Rs5.65 per unit from now till October to collect a whopping Rs884 billion from consumers”.
Our rulers since 1960s have developed addiction for intake of foreign loans, especially IMF bailouts—many call these death-blows. With every loan comes a host of conditions—ostensibly meant for economic revival and reforms but every time leaving us in deeper economic quagmire and miseries for the common citizens. Musharraf-Shaukat duo hoodwinked the nation by claiming that they were not borrowing from IMF, whereas in reality loans were taken even for reforming (sic) the tax, banking and justice systems—just to mention a few. Fresh loans were negotiated with renewed enthusiasm by all the successive governments. This undesirable trend continued unabated with repeated vigour during the Decade of Democracy [2008-18] under the regimes of Pakistan Peoples Party [PPP] and Pakistan Muslim League-Nawaz [PML-N].
Pakistan signed $11.3 billion Stand-by Arrangement (SBA) with IMF in 2008 and got disbursements of about $7.6 billion. It failed to get the remaining $3.7 billion due to lapses in performance criteria, leading to suspension of the programme in May 2010, culminating in an unsuccessful ending on September 30, 2011. The main responsibility of failure was attributed to then Economic Minister of PPP, Dr. Abdul Hafeez Shaikh, who is now un-elected Finance Minister of the PTI coalition Government.
It is a fact that after two programmes of IMF, availed by PPP and PMLN, our economic woes have continued. The situation on fiscal front deteriorated despite taking US$ 100 million loan from World Bank for six-year-long Tax Administration Reforms Programme (TARP). At the end of TARP in 2012, our tax system was more dysfunctional than before. The critics of IMF blame foreign experts for this fiasco. Their main objection is that the IMF and World Bank suggest prescriptions without understanding the mundane realities of Pakistan. The IMF, World Bank and others donors are least pushed about the inequitable character of our tax system, under which the burden of taxes is less on the rich and more on the poor.
The government of PMLN [2013-18] set new records of borrowing, internal and external, though before coming to power contrary claims were made. On September 4, 2013, the PML-N signed fresh loan agreement of $6.7 billion with IMF and its economic wizard, Ishaq Dar, now fugitive, said: “It will put the country on the path of sustainable growth and was going to open lending avenues with other international lenders”. Jubilation on further indebtedness by the PML-N received a jolt when IMF decided to disburse only $547 million as first tranche, much lower than what Dar was expecting. For the release of the remaining amount, tough conditions were imposed and accepted. These were never debated in Parliament as was the case in 2008 under PPP. Now strangely, both PPP and PMLN are criticising PTI Government for availing IMF’s bailouts without any debate in Parliament, The IMF’s bailout package, as in the past, entails conditions that are bound to be not only politically unpopular but detrimental to the economic growth of the country, adding further miseries to masses already facing economic toll of Covid-19 endemic.
While the rich remain outside the tax net, the poor are paying exorbitant GST on items of daily use. We need to overhaul theincompetent, inefficient and corrupt tax machinery. The untapped income/wealth in Pakistan is over Rs.5 trillion. If we manage to collect even extra tax of Rs. 5 trillion in the coming three years, the government will not require fresh domestic and foreign loans. The collection of taxes to these levels can eliminate budget deficits and Pakistan will be in a position to retire debts. For this, Federal Board of Revenue (FBR) should be insulated from all kinds of political, financial and administrative pressures. At the same time, it should not assume the role of legislature and policymaker which, under the Constitution is the sole prerogative of the people of Pakistan through their elected representatives. The appointment of Chairman and members of FBR should be through a public hearing by joint Select Committee of National Assembly and Senate and not on the wishes and dictates of the ruling political party headquarters.
The government must reduce its humungous size and earmark revenues for specific purposes placing the same in funds created for debt retirement, creation of employment zones and provision of social services, such as education, health, housing, etc. This will inspire the people to contribute to the national exchequer. This is the only way that revenues can be generated through voluntary compliance and at the lowest possible cost. Simultaneously, the federal and provincial governments must reduce the monstrous size of the government, monetize all the perquisites of bureaucracy and make taxes simple and low-rate.
The state lands, lying unproductive or occupied by elites, should be leased out for industrial, business and commercial ventures. It will generate substantial revenues along with facilitating rapid economic growth. It alone can make the government self-reliant. On the contrary, the prescriptions by IMF/World Bank for further taxation are detrimental for economic progress in the long term. The root cause of our many problems is inefficient and corrupt government apparatus and huge spending on luxuries enjoyed by the elites. The elitist control over State apparatus needs to be dismantled through empowerment of masses at grass root level by implementing Article 140A in letter and spirit. Once this is done, the process of true democratization of society and economic prosperity for all will begin.
The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS).