Give him a free hand

Dr Ehtesham Ahmed, a former member of the board of directors of the International Monetary Fund (IMF), while addressing a seminar on the urgency of tax reforms made some revelations that confirmed a pervasive view held in this country: that the IMF extended the Stand-By Arrangement (SBA) in November of 2008 mainly because of direct United States intervention.
Implicit in this charge is the acknowledgement that it was not our economic managers but our politico-military leaders who successfully persuaded the US to use its considerable influence in the Fund to bypass all their legitimate concerns with respect to our compliance record in the past that provided an indication of the likelihood of our compliance in the future.
It was common knowledge in 2008 that the US was proactively engaged with Pakistan's newly installed civilian and military leadership as integral components of its holistic strategy to ensure our complete co-operation on the Pakistan-Afghanistan border areas. However, US strategy has undergone a major change since 2008 with the US government openly criticising the Pakistani government and establishment on several issues.
These range from the failure of the economic team to reform the tax system by imposing a tax on the income of the rich and influential, the majority of the cabinet remains exempt from paying a tax on their income, to allegations of massive corruption in the US civilian and military support to allegations that the resources earmarked for defence on our border with Afghanistan have been diverted to our border with India (a charge that was accepted by former dictator Musharraf) to growing differences between the ISI and the CIA, post-Raymond Davis episode.
There is evidence to suggest that the US does consider a partnership with Pakistan critical to its success in its ongoing war in Afghanistan yet the body language of the US and Pakistani military leadership during their meetings in recent months clearly shows that while neither party is talking divorce yet, there is clearly an estrangement.
Or, in other words, the US is no longer pressurising the IMF to release the penultimate tranche of the SBA to Pakistan and that decision is now premised solely on our compliance with the conditions that were agreed between the government and the IMF staff.
The fifth review between the IMF and the Ministry of Finance remains stalled in spite of the three presidential ordinances passed on March 15 envisaging one-off taxes with the objective of generating resources to meet the rehabilitation and reconstruction needs of the flood-affected areas as well as the statutory regulatory order issued by the Federal Board of Revenue on the same day that revised the zero-rating proposals soon after they were issued. The IMF dismissed these measures as one-off and not sufficient to lead to any conclusion that Pakistan's compliance record has improved.
Be that as it may, Dr Ahmed's dismissal of the 15 March SRO with implementation envisaged from April 1, as an April fool's gift to the nation is a bit harsh. Shaukat Tarin single handedly insisted on a third party audit of the controversial rental power projects and the incumbent Finance Minister has single-mindedly focused on improving the government's compliance record against all odds.
The major issue with Dr Sheikh, is, that being a technocrat he is solely dependent on the political leadership for support within the parliament for implementing the requisite measures for compliance with the covenants signed with the IMF. He has not been given a free hand to take on the 'holy cows' to reform the tax system.
Consequently he has not focused on levying any controversial tax like the farm income tax that had been proposed by his predecessor. Instead, he has focused on ending exemptions, in an effort to bring the current general sales tax regime in line with the value-added tax agreed between the IMF and the government and indicated in the first Letter of Intent signed by the government on 20 November 2008.
The solution is simple: if a technocrat is appointed as a head of any ministry/institution then until and unless he or she is allowed the freedom to take economic decisions independent of political considerations, the success rate would remain poor. That is precisely what has been evident in the past three years. The PPP government continues to lack an economist of any worth within its ranks leading to appointments of technocrats as Minister of Finance. Perhaps it is time to appoint a political heavyweight as a minister for finance and empower him with a good team or provide the technocrat finance minister the political support to revamp the tax system and streamline the economy.