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Reforms for economic stabilisation

Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori

General Asim Munir took over command of the armed forces of Pakistan as 17th Chief of Army Staff (COAS) on November 29, 2022. The outgoing COAS, Qamar Javed Bajwa, who remained in office for six long years, was unfortunately, named in some controversies such as initial rejection of the inquiry report in Dawn leaks and Faizabad dharna (sit-in) crackdown orders. He was also allegedly sided with a political party in 2018 general elections.

The three-time elected ex-Prime Minister, Mian Nawaz Sharif, on various occasions, after disqualification, demanded accountability of General (retired) Bajwa and former Chief of ISI, General Faiz Hameed, for alleged political interventions. The former has now opted for earlier retirement being not named as COAS. Imran Khan, Chairman Pakistan Tehreek-e- Insaf (PTI), also accused General (retd) Bajwa for helping Pakistan Democratic Alliance (PDM) to succeed in vote of no confidence.

During General (retd) Bajwa’s tenure, India shamelessly changed the status of Kashmir by amending Article 370 of India’s Constitution. Many analysts allege that existing chaotic economic situation is partly due to institutional interventions. It is heartening that at last, the army’s command has changed smoothly with clear commitment not to indulge in politics.

General Asim Munir took charge as COAS, after appointment by Prime Minister, Mian Shehbaz Sharif, on November 24, 2022, putting aside the pressures of PTI, eliminating chaos and speculations in the media. Earlier, politics around appointment of COAS created a furor in the country. PTI’s leadership tried to pressurise the government making demands like giving extension to General Bajwa or holding early elections before his retirement. The undue importance given to this matter, despite the fact that one-third of the country was inundated in flood waters, inflation hovered around 26%, policy rate jumped to 16%, stock exchange witnessed continuous slide, and foreign exchange reserves were down to a level that was not enough to meet imports for one month.

Pakistan is currently in an International Monetary Fund (IMF) programme. Until today, the eighth review has been completed and an IMF delegation was expected to visit in the month of November. According to Reuters, IMF has resumed negotiations with Pakistan for the upcoming ninth review of ongoing Extended Fund Facility (EFF) programme. While writing these lines, Pakistan had shared fiscal data with IMF team including floods and related expenditures details. IMF is reviewing it so that the delegation can visit Pakistan soon. Since the exact date for completion of the review and release of the next tranche by the IMF is not clear, one can easily predict that the difficulties of Q-block will not end soon.

The former unelected finance minister, Miftah Ismail, in various articles, has been creating the impression that Pakistan is close to an external default.  He has also raised concerns about the successful completion of the IMF’s programme as well. However, he constraint to highlight the mess he created during while obeying the orders of IMF. Despite facing severe challenges on the fiscal front including the potential risk of default, the PDM government is not willing to undertake fiscal reforms.

The successive governments in Pakistan have failed to implement the reform agendas agreed with the global lender of last resort what to speak of undertaking fundamental structural reforms related to governance, judiciary, agriculture, land reforms, and dependency on wheat, petroleum, and energy. The IMF has extended EFF programme until June 30, 2023 with an augmentation of access by SDR 720 million subjects to implementation of corrective measures and policy commitments.

In its country report, released on September1, 2022, IMF specifically mentioned that overall programme performance remained weak since the completion of the last review and until recently due to missing several quantitative criteria and gaps in implementing the fiscal and structural reforms agenda in particular.

The report specifically sheds light on Pakistan missing four indicative targets: (i) targeted spending under Benazir Income Support Programme (BISP) due to a slower than envisaged enrollment into the unconditional cash transfer (UCT); (ii) inadequate allocations for health and education because of less expenditure on both COVID-19 vaccine procurements in FY22 (Q3) and education due to the implementation of COVID restrictions; (iii) net accumulation of tax refund arrears due to administrative delays; and (iv) power sector payment arrears due to delayed tariff adjustments and higher-than-expected generation and financial costs. The report further notes that these targets were missed in March 2022 as well due to the same reasons.

Our political elite has been continuously ignoring reforms in the state-owned enterprises (SOEs) to improve their governance, ensure transparency to curtail financial risks and increase efficiency. Though the National Assembly adopted State Owned Enterprises (Governance and Operations) Act 2021, on June 6, 2022, it is still pending in Senate for approval. This fact is highlighted in various international reports including that of the World Bank showing that the profitability of SOEs is rapidly declining.  

The World Bank in its report, ‘Hidden Debt: Solutions to Avert the Next Financial Crisis in South Asia’, specifically mentions that the income-dropping rate is recorded at approximately 57% on average from 2014-2017. It further highlights that 95% of SOE revenue in Pakistan came from the energy and transport sectors. The report reveals that Pakistan and India’s SOE sector is larger than the international benchmark. However, no government in Pakistan has been interested in reforming it to avert heavy losses to national treasury on their account. This money could have been invested in the social sector to raise living standards of the citizens. Apart from the SOE reforms, Pakistan needs basic structural reforms to improve inefficient and outdated governance through a comprehensive control system so that all the institutions should work in their defined domain and be subject to meaningful and effective accountability for any violation on their part.

Real estate sector is another area that requires immediate reforms. The PDM government tried to impose taxes on non-productive assets vide Finance Act, 2022, but legislation quality is poor and in disregard of provisions of the supreme law of the land—the Constitution of Islamic Republic of Pakistan. These measures are devoid of enforcing documentation and generate revenue from the rich. The government should develop an open and transparent system of electronic titles to property utilising identification and monitoring tools. The government should also introduce reforms in the agricultural sector. A substantial part of our population is dependent on agricultural income. Thus, we should provide facilities to them for increasing production. At the same time, the provincial governments must introduce fair taxation for the high earners, especially absentee landowners.

It is an undeniable fact that purchase of petroleum products and the generation of electricity consume major portion of revenues, other than on luxuries of the ruling elites. Wastage of huge amounts due to circular debt in both electricity and gas is another daunting challenge. We have the opportunity to minimise losses by introducing alternative sources of energy e.g. solar and wind but due to import restrictions, these options are limited.

The rulers must realise that we cannot come out of prevailing fiscal mess until we take pragmatic measures to curtail wastage of resources. The sooner they realise it, the better it will be. It is clear that seeking funds from IMF or bilateral arrangements to meet fiscal targets will not help us much. We are a country of over 220 million people that cannot survive on the one billion plus tranches of IMF after imposition of strict conditions, nor can we survive on commitments by China or Saudi Arabia.

Note: Originally published in Political Economy section of TNS (@TheNewsonSunday) without retaining the references (hyperlinked) and few paragraphs omitted, may be for want of space. The link is:



Dr. Ikramul Haq, Advocate Supreme Court and writer, is Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions with Huzaima Bukhari.    

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