Long road ahead

Pakistan and the IMF have reached an agreement for next year’s budget, which would see the country attempt to reduce its fiscal deficit and growth in indebtedness. At a joint press conference, the finance minister and the IMF Mission Chief in Pakistan announced the broad features of the targets and expectations for fiscal year 2016 while also agreeing that a consolidation phase would have to kick in to continue the “good work” that has been done so far.



There is no doubt that the increase in foreign exchange reserves and a somewhat improved security situation have revived hopes in the country’s economic outlook. The IMF, the World Bank, the Asian Development Bank, and the upgrade of rating by Moody’s and Standard and Poor’s have, at different times, reinforced that belief. The IMF has even revised upwards Pakistan’s projected growth for 2015-16, from 4.1 per cent this year to 4.5 per cent in the next. The increase, however, is lower than that of regional economies, which are also expected to improve on the back of falling oil prices. The Nawaz Administration will take credit for the improvement in the economy. While this is justified to an extent, the celebrations on its part need to be a little subdued. The slump in global crude oil prices have been a massive help. It helped reduce costs for the government while Operation Zarb-e-Azb was in full swing. It gave the government opportunity to enhance GST on petroleum products in order to help revive dwindling revenues and cut down the subsidy on power.

While macro issues were looked after, mostly due to the IMF’s bailout terms, the fact is that the people’s sufferings have not reduced as much as they should have. Power woes have not been reduced. Industries continue to suffer from falling exports for several reasons. The government has gone out of its way to increase tax rates for those segments that already pay taxes. Little effort has been made to increase the tax net. A grant from Saudi Arabia has helped the foreign exchange reserves situation. Suffice to say, this phase of the government’s tenure is more critical than the one it has passed through so far. It’s time to consolidate and keep the promises made — not just those made to the IMF but also those made to the public.

Published in The Express Tribune, May 13^th,  2015.

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