Einstein’s famous saying that “Insanity is doing the same thing over and over again and expecting different results”, seems a befitting quote to describe the long-time sole focus of the country’s economic managers and the International Monetary Fund (IMF) on reining in the country’s fiscal deficit. For the past two decades, improving the tax to GDP ratio has been the primary agenda is successive IMF programmes.
Ironically, in all this time, the proportion of tax in Pakistan’s national product has actually worsened.
Those at the helms of Ministry of Finance and State Bank of Pakistan have made a habit out of passing the buck on to the other, whenever they are quizzed over the responsibility for ensuring reforms pledged to the Fund.
The key conditionalities of the most-recently negotiated programme included Value Added Tax, Reformed General Sales Tax, net zero government borrowing from central bank on quarterly basis, doing away with subsidies and steps prescribed for the resolution of energy circular debt.
All these reforms were routed through directors at SBP and bureaucrats at the Finance Ministry. In essence, implementing these reforms is their basic job description and responsibility.
Otherwise, there is no magic wand that the Fund will waive and magically transform the dismal state of fiscal affairs.
But there is a method to the madness: instead of focusing on this responsibility, SBP and Finance Ministry are jointly focused on maintaining the status quo of poor governance and a culture of rent seeking.
Consider the implementation of RGST: it required no new legislation. Instead, the Government could have restored the GST regime of the early nineties by repealing scores of Statutory Regulatory Ordinances (SROs) that were issued subsequently, creating exemptions, lacunas and loopholes.
The fiscal deficit cannot be slimmed by simply running simulation models on excel sheets, with a few assumptions here and there. Broad-based governance reforms can only be introduced by changing mindsets and true independence of institutions SBP, the Planning Commission and the Federal Board of Revenue.
Otherwise, given hundreds of billions of rupees of throwback of developmental projects, it is not possible to focus on employment generation, capacity building and utilisation. Revenues and expenses cannot be managed in the lack of governance and oversight.
The bleeding Public Sector Enterprises (PSEs), mushrooming inter-corporate circular debt emanating from the energy sector, lethargy in cutting subsidies and collecting taxes; these are the reasons why the fiscal deficit is growing unabated.
Whenever the gap (fiscal and external) reaches an alarming level, just enough support flows in from the United States of America, or a multilateral at its behest. Sahabzada Yaqub Khan, the former-Foreign Minister of Pakistan, once said “Foreign policy in a poor country like Pakistan is all about plugging the resource gap”. And so it is, that foreign policy is hostage to the dismal fiscal realities as well.
The social betterment of all Pakistanis dictates that those reforms should be introduced that enable broad-based prosperity: opening trade routes, creating a conducive investment climate, promoting exports. It is the only sane thing to do.
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