The writing is on the wall. Going back to IMF is inevitable as the foreign reserves shrink and fiscal deficit swells. But the recent visit of the caretaker team to Washington is not likely to substantiate into a new facility as being speculated. Yes there are hefty repayments to the Fund to be made and the reserves are shrinking rapidly, it does not necessitate instilling a new programme immediately.
The meetings were more like a routine update to share the latest data with the Fund and to set tone for the new memorandum of reference which is likely to be signed in the very early days of new government.
Its high time for the IMF and the policymakers to ponder upon the conditions that fall in the political economic realm of the country. IMF needs to learn its lessons from the poor results of calling austerity in the recent European episode.
Austerity is good but the ultimate goal is to gain growth momentum and any tightening leads to increased economic activity. But that didn happen in the previous episodes of IMF progammes run in various countries in the past few years. So an out of box thinking is required on part of the IMF to yield the desired results.
More importantly, IMFs conditions never worked to its liking. The continuously declining tax to GDP ratio is a case in point, where the IMF wants exactly the opposite.
None of the main conditions were met in letter and spirit out of the four stipulated in the last memorandum of reference. The idea should be to learn from the shortcomings and attempt to map the ground realities on the paper in formulating the new MoR.
Issues like VAT shall be dealt constitutionally. One option is to transfer any kind of income tax falling in the ambit of federating units to the federation such as agriculture income tax or capital tax on real estate. On the same token, sales tax on goods can be transferred from centre to provinces.
On the energy front, tariff rationalisations needs to be tackled smartly, without creating a law and order situation and burdening the poor.
Comments
Comments are closed for this article.