Diminishing window of opportunity
IMF chief has pointed out that Pakistan’s exports account for a mere 10 per cent of the GDP
The writer is a development anthropologist currently based in Fairfax, Virginia
Acouple of weeks ago, Christine Lagarde, the Managing Director of IMF wrote an op-ed in The News titled ‘Pakistan’s moment of opportunity’. Her message in this op-ed was a mixed one. On the one hand, she praised Pakistan’s completion of the three-year IMF economic programme, which is supposed to help us join the ranks of emerging market economies. Yet, she also pointed out that a long road lies ahead in terms of achieving reasonable growth, and in making our growth more inclusive. However, the IMF’s own record in helping make growth more inclusive across most of the developing world is not very encouraging.
One thing that the IMF Director did get right is that Pakistan will have to lean on the strength of its own policies to achieve sustainable growth. But how to do that remains a contentious topic. Besides public investment in infrastructure to help remove obstacles to economic activity, such as the China-Pakistan Economic Corridor, the IMF thinks that it is the private investment which has the potential to deliver higher growth in Pakistan. Pakistan’s private sector is estimated to represent under 10 per cent of the economy, which is below the average for other emerging markets. Besides using the private sector to encourage growth, the IMF thinks that the private sector can improve delivery of essential social services such as water and sanitation, health and education, for which there is not much evidence. Yet, allowing the private sector to take over public responsibilities is how the IMF wants to free up resources to invest in social safety nets, meant to protect the most vulnerable segments of society, when they are adversely impacted by privatisation. But the prevalent inefficiency, graft and corruption which continue to afflict social safety nets is not very reassuring either.
On the other hand, the IMF chief has pointed out that Pakistan’s exports account for a mere 10 per cent of the GDP compared to 40 per cent for emerging economies. The IMF thinks there is a vast untapped potential for Pakistan to trade with its neighbours, and to better integrate into global value chains. Although regional trade would be a good idea, the lingering hostilities with India and Afghanistan remain major impediments, which the IMF cannot do much about. The IMF also does not say much about the hierarchical nature of supply chains, which create highly exploitative conditions for workers in the developing world.
One cannot deny that Pakistan does need to significantly raise its own revenue through taxation to support its growth and development. Our current tax collection is slightly more than half of what is needed to sustain growth. While there is no doubt that we need to collect more taxes, the IMF is fine with widening an already regressive tax base, where 80 per cent of tax revenues are being derived from indirect taxes which do not differentiate between the rich and the poor. According to the Social Policy Development Centre, the richest 10 per cent of our population is paying 10 per cent of their income in indirect taxes, while the poorest 10 percent is paying 16 per cent. Instead of applying more indiscriminate indirect taxes, we need to progressive taxation which raises the tax rate of those who are wealthy.
For Pakistan, focusing on growth and privatisation has not proven sufficient. Many prior attempts to pursue high growth as a vehicle for poverty alleviation have failed, ranging from the Ayub to the Musharraf eras. No serious attempts have yet been made to address the glaring inequality across the country. The IMF’s prescriptions of economic growth also continue to further consolidate wealth in the hands of a few, and are in turn partly responsible for the lingering disparities, and resulting societal friction, within countries like our own. The IMF pays lip service to the notion of need inclusive growth, but such growth cannot be ensured using the market mechanism alone.
With 65 per cent population under the age of 25, development experts are thus right to warn that Pakistan’s demographic dividend is turning into a demographic disaster due to our dismally low human development indicators.
Published in The Express Tribune, November 11th, 2016.
One thing that the IMF Director did get right is that Pakistan will have to lean on the strength of its own policies to achieve sustainable growth. But how to do that remains a contentious topic. Besides public investment in infrastructure to help remove obstacles to economic activity, such as the China-Pakistan Economic Corridor, the IMF thinks that it is the private investment which has the potential to deliver higher growth in Pakistan. Pakistan’s private sector is estimated to represent under 10 per cent of the economy, which is below the average for other emerging markets. Besides using the private sector to encourage growth, the IMF thinks that the private sector can improve delivery of essential social services such as water and sanitation, health and education, for which there is not much evidence. Yet, allowing the private sector to take over public responsibilities is how the IMF wants to free up resources to invest in social safety nets, meant to protect the most vulnerable segments of society, when they are adversely impacted by privatisation. But the prevalent inefficiency, graft and corruption which continue to afflict social safety nets is not very reassuring either.
On the other hand, the IMF chief has pointed out that Pakistan’s exports account for a mere 10 per cent of the GDP compared to 40 per cent for emerging economies. The IMF thinks there is a vast untapped potential for Pakistan to trade with its neighbours, and to better integrate into global value chains. Although regional trade would be a good idea, the lingering hostilities with India and Afghanistan remain major impediments, which the IMF cannot do much about. The IMF also does not say much about the hierarchical nature of supply chains, which create highly exploitative conditions for workers in the developing world.
One cannot deny that Pakistan does need to significantly raise its own revenue through taxation to support its growth and development. Our current tax collection is slightly more than half of what is needed to sustain growth. While there is no doubt that we need to collect more taxes, the IMF is fine with widening an already regressive tax base, where 80 per cent of tax revenues are being derived from indirect taxes which do not differentiate between the rich and the poor. According to the Social Policy Development Centre, the richest 10 per cent of our population is paying 10 per cent of their income in indirect taxes, while the poorest 10 percent is paying 16 per cent. Instead of applying more indiscriminate indirect taxes, we need to progressive taxation which raises the tax rate of those who are wealthy.
For Pakistan, focusing on growth and privatisation has not proven sufficient. Many prior attempts to pursue high growth as a vehicle for poverty alleviation have failed, ranging from the Ayub to the Musharraf eras. No serious attempts have yet been made to address the glaring inequality across the country. The IMF’s prescriptions of economic growth also continue to further consolidate wealth in the hands of a few, and are in turn partly responsible for the lingering disparities, and resulting societal friction, within countries like our own. The IMF pays lip service to the notion of need inclusive growth, but such growth cannot be ensured using the market mechanism alone.
With 65 per cent population under the age of 25, development experts are thus right to warn that Pakistan’s demographic dividend is turning into a demographic disaster due to our dismally low human development indicators.
Published in The Express Tribune, November 11th, 2016.