The wide gap

The IMF programme is normally regarded by our ruling elite as promissory notes for obtaining desperately needed loans.

M Ziauddin July 09, 2013
The writer is Executive Editor of The Express Tribune

Considering the relatively strong political mandate with which the PML-N swept into power and considering also the gigantic economic problems the country is facing currently, the federal budget that it announced exuded an extraordinary measure of bureaucratic timidity. On the other hand, considering the decidedly boneless budget, the so-called “home-grown” programme that the finance ministry subsequently negotiated with the IMF looks, politically, too bold to be implementable. And it is a front-loaded programme as its approval by the IMF board is subject to the timely completion of prior actions related to phasing-out of all existing statutory regulatory orders (SROs) and other measures which grant special rates and tax exemptions, as well as the phasing-out of untargeted subsidies that disproportionately benefit the well-off, energy reforms and significant structural reforms in the areas of trade, public-sector enterprises, restructuring and privatisation of public enterprises. And there is also this condition that the exchange rate be rationalised over time, which in plain words means creeping depreciation of the rupee down to its realistic level.

The economic gap that the finance minister, Ishaq Dar, has succeeded in creating between his faint-hearted budgetary measures and the daring conditionalities he agreed to in the proposed “home-grown” programme is so wide as to provide the rich more than the needed room to escape unscathed. The Fund programmes are normally regarded by our ruling elite as promissory notes for obtaining desperately needed loans. One can, and we frequently do, take liberties with such promissory notes given to the Fund. On the other hand, once one is brought under the tax net through legally binding budgetary measures one has only two options — either to pay one’s dues in full to the treasury or part with a part of the dues in bribe to escape full payment. Therefore, the ruling elite see to it that proposals that have the potential to legally shave off even the thinnest slice from their unearned profits are never brought to the budget table for consideration. But the tall promises in the promissory notes don’t bother them, for obvious reasons.

The increase in GST from 16 to 17 per cent was not at all a problem because it does not affect the rich. They let the added burden pass through to the teeming millions. What, however, they would not like to be subjected to is RGST or Value Added Tax (VAT), which has the potential to document the economy making it almost impossible for them to avoid or evade taxes due from them. That is why, led by the current ruling party, formerly in opposition, and supported by the MQM, formerly in coalition government, this reform was vehemently opposed when the PPP-led government dared to introduce it in its last budget.

Moreover, if withdrawal of all those SROs which allowed special tax rates and exemptions to a handful, if withdrawal of subsidies which benefit the well-to-do as well and if extension of the tax net equitably are home-grown measures and if all these reforms are to be introduced even before a single Fund penny is disbursed, then why were not all these reform related measures included in the budget? Also, equitable tax measures would mean netting in taxable incomes from agriculture as well. So, would the Punjab government, which has come in on the back of a massive provincial mandate, consider imposing such a tax on provincial farm incomes?

In short, the entire IMF episode appears to be a clumsy attempt by a desperate government to dodge default. And the Fund seemingly had no option but to go along with the charade because in the first place, it did not wish to be seen as having failed a member country and be exposed to close scrutiny of its own faulty methods of handling such situations. Secondly, the Fund, perhaps, is wary of the international consequences of default by a major Asian debtor. More so because the major portion of Pakistan’s debt is owned by the World Bank, the IMF and the Asian Development Bank. But then, if it is in the global interest of the US and Europe to keep Pakistan from drowning, Islamabad is likely to get what it is asking for even if we fail the conditionalities. Otherwise, we’ve had it.

Published in The Express Tribune, July 10th, 2013.

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logic | 9 years ago | Reply

Ziauddin Sahib is a master in conveying his thoughts in few words. Well written analysis. I feel this country is moving towards logical conclusion.Let's hope that the journey is less painful for the masses....

meekal a ahmed | 9 years ago | Reply

Ziauddin Sahib,

In the interest of full-disclosure, Ziauddin Sahib and I go back ages. He is the only one who would leave me tongue-tied by his analysis and questions.

Failing conditionality is nothing new, Sir, as you well know.

We are master's at that.

At the expense of sounding cynical, I am confident that we will do a few cosmetic things here and there and if we can't adhere to targets, structural benchmarks and performance criteria, we will ask for "waivers for non-compliance" and complain that the design of the program was defective. We are masters at that too.

If things turn out differently, and this new program is implemented, I would be happy to concede I was wrong, give up economics and take up gardening instead.

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