EDITORIAL: During a press briefing in Washington DC, Julie Kozack, Director of Communications International Monetary Fund (IMF), stated that the 3 billion dollar nine-month Stand-By Arrangement (SBA) is to “provide a policy anchor for addressing domestic and external imbalances and a framework for financial support from other donors, multilateral and bilateral partners, including fresh financing and rollovers of debt coming due.”
This must surely bring it home to the caretakers that any deviation or violation of the agreed quantitative time-bound conditions and structural reforms programme would exacerbate domestic and external imbalances and bring the country back to the juncture where the threat of default loomed large on the horizon – a juncture where Ishaq Dar as the finance minister had landed the economy due to persistent and economically inexplicable policies that violated agreed conditions with the IMF.
The luxury of deferment or phasing out the harsh upfront conditions agreed by former Prime Minister Shehbaz Sharif, including the recent rise in electricity rates against which street protests are continuing to this day, are no longer on offer by the Fund or the multilateral and bilateral partners.
Kozack further emphasised that: “policy efforts centre on the implementation of the fiscal year 2024 budget, appropriate monetary policy aimed at bringing inflation down, and continued reforms to improve the viability of the energy sector.
All of these reforms are ultimately aimed at paving the way for higher, more inclusive and more resilient growth. To support social development and climate resilience, the programme envisages plans to strengthen public financial management, tax administration efforts, and to better prioritise public investment.
And all of this is being done with support from partners, including not only the IMF but also the World Bank and the Asian Development Bank.”
The two sectors that have consistently performed very poorly and have reached a stage where our international partners are no longer willing to give a reprieve are the energy and tax sectors.
The recent crackdown on electricity theft must be appreciated but recovery has been less than 12 billion rupees while the sector’s circular debt is 2.6 trillion rupees today with the outstanding stock of government sovereign guarantees to the power sector at 2.54 trillion rupees.
In addition, the PML-N supposedly in an election mode, is bafflingly focused on ensuring a welcome worthy of the three-time prime minister Nawaz Sharif scheduled to return after a little more than four year absence from the country instead of taking responsibility for signing off on contracts with Independent Power Producers (IPPs) under the China Pakistan Economic Corridor (CPEC) that is the major cause of the high electricity bills last month creating serious angst amongst the general public.
The total labour force in the country is around 75 million but less than 3.5 million operate in the public sector whose salaries are paid for by the taxpayers – salaries that were raised year after year by the previous four administrations notwithstanding the narrowing fiscal space, while those operating in the private sector have been subjected to a freezing of salaries for the past four to five years due to the ongoing economic impasse with many compelled to join the ranks of the unemployed as unit after unit shuts down due to the ever-rising input costs.
Poverty has risen to nearly 40 percent as per a recent World Bank report and the fault lies not only with the Covid-19 or the floods but also the flawed economic policies of the past four to five decades at least.
The tax sector, too, has performed very poorly mainly because the focus of administration after administration has been on raising revenue from the existing taxpayers instead of reforming the tax structure to make it fair, equitable as well as non-anomalous by shifting the current reliance on indirect taxes (to the tune of over 70 percent) to direct taxes which can be achieved by taxing the rich untaxed sectors notably the traders, the rich agriculturists and the real estate sector.
It is disturbing that the previous four administrations, including the Pakistan Democratic Movement’s two finance ministers – Ismail and Dar - succumbed to political as opposed to economic considerations though, at the end of the day, measures to raise revenue from existing taxpayers will alienate them from ever-rising number of voters.
There is talk today of taxing moveable assets; however, this would be tantamount to double taxation on existing taxpayers if their savings and investments are taxed, which would push them into the parallel economy and one can only hope that better sense prevails and the government taxes those that today remain outside the net.
The caretakers are fast-tracking the privatisation process based on the premise that all previous administrations had supported it, however, one would hope that they remain vigilant and ensure that the current state of the economy which is not conducive to domestic or foreign investment does not lead to selling the family silver at throwaway prices or negotiating contracts that would further burden the public in future (similar to IPP contracts signed by the PML-N from 2014-17) for therein lies not only the threat of litigation but also social unrest.
Conspicuously missing from the caretakers’ effort thus far is the crying need for reducing the runaway current expenditure. There are reports that some plan in this respect is in the works but it has yet to emerge.
In the meantime, the foreign trip of the caretaker prime minister, ostensibly for attending the United Nations General Assembly Session in New York, that took him to Paris, London and Saudi Arabia as well was indeed the first of its kind for a caretaker administration and that too at a time when the country’s finances, particularly its foreign currency reserves are stretched as never before in its history. It was indeed bad optics as it may appear to be an exercise in milking the system for what it is worth.
Inexplicably, the focus of all political parties today is in getting a foothold back into the corridors of power, each according to the field that would be available to them, and not on the common man struggling to make ends meet today.
One can only hope that the country’s political elite, those in a position of strength today and those struggling, focus on the plight of the hapless public rather than on their overarching objective to regain power.
Copyright Business Recorder, 2023