Why amnesty for wealth abroad?

The recently announced tax reform follows from the little-noticed commitment given by the prime minister in his first speech in the National Assembly. Work on details and consultation with stakeholders were initiated soon after. Despite a dismal history of tax amnesties, the foreign edition of the latest scheme seems to have been launched as a regrettable necessity. The foreign exchange payments we are liable to make amount to much more than the size of the kitty we expect. This is how it has always been during political transitions. Only this time it is worse. The external gap is humongous and the net reserves barely cover a month and a half’s imports. Debt-servicing burden is more serious because half of the recently contracted debt is short term. The track record of structural reform is unenviable. The standard recipe in the past was that the caretakers would reach tacit understandings with the IMF for a programme to be formalised by the next elected government, with its hands tied at the back.

Contrary to expectations, there is every indication that the IMF is eagerly waiting for Pakistan to make a request, especially by a politically naïve caretaker set-up. Its main shareholder, Trump’s America, is waging a war on Pakistan by nonconventional means. There will be no better means than the IMF conditionality to scuttle the economy of Pakistan. After a long time, the GDP growth has increased every year since 2012-13. The current year is closing on a growth rate of 5.8 per cent, the highest in the last thirteen years. In the previous political transitions, both growth and external accounts presented a miserable picture. Growth now is robust and on a higher trajectory. Any conditionality in the name of consolidation and reform will push growth back into a deep slumber. The IMF made no secret that the CPEC investment would have to slow down under any agreed programme. There is every possibility that the red herring of the FATF will be thrown up. The real conditionality will be political to achieve strategic realignment.

Again contrary to expectations, there seems to be an unwritten consensus in Pakistan against seeking the IMF support. CPEC is an obvious rallying point for all the significant players, with the miltablishment committed to secure it at all costs. On its part, the government has declared that the budget will not expect any contribution from the overdue amount of $9 billion as Coalition Support Fund. Official policy of letting the rupee slide was misread as a preparatory measure to approach the IMF. The latest strong dose of income tax reform indicates that the two measures are designed to demonstrate that reform is possible without the IMF crutches. Political parties opposing the amnesty scheme are also not inclined to go to the IMF. However, their opposition to amnesty undermines the main vehicle to resist the IMF. These parties have threatened to challenge the amnesty in the courts. Little do they realise that the judiciary is part of the consensus to find local solutions to our economic problems. In the meeting between the prime minister and the chief justice last March, the main topic was not Nawaz Sharif but tax reform. The strategy is to benefit from the global tightening of leash on hidden wealth to quickly bring back some $5-6 billion in a self-terminating scheme. This, together with further restraints on imports to be announced, will be more than enough to manage the twin deficits in the short run and protect long-term growth.

Published in The Express Tribune, April 13^th, 2018.

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