The contested deal
With succor hopefully in the pipeline, there is a sense of respite in the treasury. The interim agreement with the IMF, nonetheless, has come with stringent conditionalities. It remains to be seen what impact it will have on a fragile economy, and its snowball aftermath on the hard-pressed masses.
An instantly available input says that the government has agreed to gradually increase the levy on petroleum and raise it by Rs50 per litre by the end of year. This will escalate the product price somewhere near the psychological barrier of Rs300 per litre, kicking off an irresistible storm of price hike. Inflation is already hovering near 22 per cent unofficially, and the same will get jacked up. Likewise, the agreement to slash the provision of increase in salaries and pensions of government servants in an attempt to save Rs200 billion will, of course, be lethal and drive a backlash. Other conditionalities such as raising the tax collection by Rs422 billion by revising the FBR target up to Rs7.440 trillion would be a tough task to accomplish, and surely come at the cost of fleecing more businesses.
There is a flip side of relief, too. The largesse on the part of Beijing to post a $2.3 billion commercial loan is a blessing in disguise. It will help buoy the sliding foreign exchange reserves, as the Chinese money will stay put as per agreed terms, and will not be in rolling. This comes at a time when the reserves stand at $8.9 billion, and the country is in a severe balance-of-payments puzzle to strike a balance on necessary imports, especially oil. China’s insistence that Pakistan must commit to the IMF programme in lieu of its upcoming commercial loan is being seen as a quid pro quo arrangement, intended for an indispensable bailout. Yet, it is a tall order and seems insurmountable. The country is in need of around $41 billion in the next fiscal year to repay $21 billion maturing loans and to finance a $16 billion current account deficit. With remittances from the foreign workforce supposed to touch the $30 billion ceiling, there is much wrestling of statistics that would be required to come full circle.
Another unique condition on the part of the international lender that would almost entail a mini-budget of sorts is the imposition of ‘poverty tax’ on companies in proportionate with their annual turnover. It is proposed to slap one per cent Income Support Levy on people and companies earning Rs150 million a year, and likewise increase the slab up to 4 per cent for earners of Rs300 million and above. This is in addition to a fixed income and sales tax system that was proposed for small retailers ranging from Rs3,000 to Rs10,000 to be collected through electricity bills. These supplementary insertions will take a toll, and will surely be contested. But as far as the sitting coalition government is concerned, it has no choice but to toe the donor’s line. This paradigm of borrowing and piecemeal sustenance should be revisited. It’s time to rewrite a manual of self-reliance by tapping indigenous potential. That the syndrome of living on borrowed money is infringing the country’s sovereignty goes without saying.
Published in The Express Tribune, June 24th, 2022.
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