During the first eight months of the fiscal year, the FBR could pool only Rs1.145 trillion, Rs440 billion less than required collection. PHOTO: FILE
The country’s economic managers have advised Prime Minister Mir Hazar Khan Khoso to knock on the International Monetary Fund’s (IMF) door for a bailout package for the economy, or take unpopular measures like introducing new taxes, withdrawing subsidies extended to the power sector, and introducing import controls to provide some stability to the embattled economy.
This tough choice was presented to the premier during his first briefing on the state of the economy here on Tuesday, with Finance Secretary Abdul Khaliq as the herald of unsavoury news. According to officials present in the meeting, PM Khoso then decided to wash down the bad news with another briefing on the energy crisis. Khaliq gave a 90-slide presentation in total, which continued for over an hour and a half, said officials privy to the matter.
In what officials called a frank and candid briefing, the finance ministry told the premier in plain words that the economy was in dire straits and require immediate action on part of the caretaker government.
The obvious question posed by Khosa to the erstwhile indifferent economic ‘wizards’ was what the interim government could do in its two months in power.
The backdrop
Pakistan has held negotiations with the IMF for a bailout package, but the signing of a new programme was put off at the eleventh hour when the then Minister of State for Finance Saleem Mandviwalla and State Bank Governor Yaseen Anwar opposed the move.
Over the past five years, expansionary fiscal policies, tax breaks under political compulsion to influential lobbies and failure in attracting foreign investments have brought the economy to its knees. Analysts have predicted that it will take at least two to three years for any new government “to repair the damage caused by the outgoing government”.
The recommendations
The caretaker premier was told that Federal Board of Revenue (FBR) has failed miserably in its tax collection efforts, and that immediate action is needed to control the yawning budget deficit. During the first eight months of the fiscal year, the FBR could pool only Rs1.145 trillion, Rs440 billion less than required collection. Instead, the finance ministry has proposed its own measures to augment taxation.
Similarly, Ministry of Finance said that subsidies were getting out of control, and interest payments had exceeded budgetary projections. It advised the premier to review the possibility of increasing tariffs to control the damage wrought by subsidies on the fiscal framework.
So far this year, the finance ministry has paid Rs251 billion in subsidies, as against the entire year’s budgeted allocation of Rs185 billion. The ministry also warned the premier that the budget deficit will exceed initial projections, and will require immediate action.
Pakistan’s economic managers have also proposed levying taxes on imports of luxury goods, making it economically unviable to import goods that are produced locally. They said this will reduce the import bill, and avert a looming crisis that follows on the heels of the country’s fast depleting foreign currency reserves.
The premier has also been advised to reduce the nation’s reliance on furnace based power generation with an aim to control the import bill. He has been suggested that more gas be allocated to power plants in order to reduce the cost of electricity generation.
The PM was also requested to negotiate with the US to expedite the release of money on account of coalition support funds, fast track the process of auctioning the 3G telecom spectrum licences, and convince the Abu Dhabi government to pay $800 million in outstanding dues on account of its purchase of shares in the Pakistan Telecommunication Company.
According to a handout provided by the prime minister’s secretariat, the premier was briefed on the current economic situation, including the position of the balance of trade, the budgetary position and the role of remittances in keeping the economy afloat.
Published in The Express Tribune, March 27th, 2013.
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COMMENTS (12)
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@Enlightened: and let the nation suffer for 3 more months...why to worry? I d suggest cancel the UAE deal. let Pakistanis come back from ME as a percussion of Iran gas deal too. Stand up like Indian in front of Italian soldiers not like Ramond davis
the comments above are perceptive.
as i have said many times before -- and it is not rocket science -- the timing of the next bop crisis is not for us to determine.
it may happen, inconveniently, during the interim government, or soon thereafter. or later.
we simply don't know.
but with no adjustment, we are surely headed for the abyss. on that there is no dispute.
it is better to turn to the imf sooner rather than later. this is because the bigger the hole we dig for ourselves, the more draconian and painful the adjustment to get the economy back on track.
no rocket science there either!
the imf will not deny pakistan bop support. but they will ask that every major political party publically endorse any program.
Pakistan's government has become so used to lies and deceit that it has played the same games with the IMF. Now the consequences will manifest themselves. You still have a window of opportunity till the ISAF withdrawal completes. If you cannot make use of this, you are doomed.
why are we not hearing any comment from any PPP jiyalas and supporters especially Mirza Sb....., the mess the outgoing govt has caused to this country in the garb of " democracy"....why have they done this in the name of democracy that people hate to hear this word " democracy "...although it is not the fault of democracy, but governance & performance were the real issue.....those so-called hero of democracy actually acted like a dictator - executing everything on its on whims, but at the same time criticizing dictators....
@A Peshawary: The alarm bells have been sounding for a while now. Anyone who's been following economic news in Pakistan knows that the situation is dire. That is why there is a rush towards hoarding hard currencies.
What a joke ? The interim govt has been installed for conducting a free and fair elections in the country and not taking policy decisions on defence, finance or foreign affairs which would ultimately be taken by the new govt in place.
"Federal Board of Revenue (FBR) has failed miserably" so do something about it.Change the entire top team and hold them accountable for their failure.
The interim PM should have asked the Economic Managers; Where were they while the economy was reaching on the verge of collapse? Perhaps sleeping in their office coaches or doing something else........ Why are they telling this poor aged guy these horrible stories at this juncture, while these managers were enjoying their prized posting in previous regime and will continue the same in future as well.
A Peshawary
Lucky you Khoso Sahab!
The interim PM is not supposed to take tough policy decisions. This is the job of the elected PM who failed to do it. Secondly, even if interim PM goes to IMF, do you think IMF will sign a deal with him? The last time around IMF suspended its program mid way because of complete lack of follow through on agreed reforms by Pakistan government. Many of the reforms were opposed by not just opposition political parties but also the government's allies. IMF wuld need to know that there was awidespread broad consensus and even see some prior actions before releasing fnds.
IT is unreasonable to dump this responsibility on an interim PM whose only job should be to facilitate the EC in ensuring a fair and transparent election
The same story has been told the caretaker PM now which was told PPP on the time of taking charge in 2008 and the caretaker PM shall face and see many more than visible till 11th May,2013 this is the commencement.....