As against the official economic growth target of 4.4%, the stabilisation package will result into a sluggish growth rate of 2.5%, which will hardly improve per capita income or in employment prospects. PHOTO: FILE
“The IMF programme targets agreed to by the Pakistani authorities clearly indicate that the process of revival of the economy has been sacrificed at the altar of macroeconomic stabilisation,” according to a report written by former Finance Minister, Dr Hafiz Pasha.
Dr Pasha in his study “Economy of Tomorrow: a case study of Pakistan” presented a detailed analysis of the IMF programme and its implications on the country’s economy and the people. “The PML-N government which was so deeply committed to economic revival has had to at least temporarily abandon this goal in the interest of securing the Fund programme”, he argued.
The study has been launched at the platform of Friedrich-Ebert-Stiftung –a German political foundation, which has initiated Economy of Tomorrow project for establishing a dialogue between Asia and Europe on a new development paradigm. As a first step the foundation is undertaking country-specific studies.
Under the $6.67 billion three-year programme, the IMF has forced tough conditions of reducing budget deficit by 2.2% of Gross Domestic Product this year, increase power tariffs and set very ambitious targets of building foreign currency reserves that will lead to rupee depreciation.
The author argued that as part of stabilisation, the IMF was seeking huge adjustment in the rupee value against the US dollar. The rupee is expected to depreciate sharply by almost 14% during the current fiscal year, falling to Rs113 per dollar by end June 2014, he added.
The IMF expects that the presence of the programme will attract foreign investors in hordes and encourage multilaterals to scale up their assistance to Pakistan. “Overall, the IMF programme, as it has come out, is unlikely to bolster much confidence in the markets, given the limited initial disbursements, quarterly reviews and very tough targets for a relatively small amount of funding”.
As against the official economic growth target of 4.4%, the stabilisation package will result into a sluggish growth rate of 2.5%, which will hardly improve per capita income or in employment prospects.
Pasha said in case of slippages on the fiscal side, there is the likelihood of mini-budgets during 2013-14 or a spate of waivers by the IMF Board.
He said it appeared that the government has agreed with the IMF that the combined federal and provincial development budgets will be cut by one-fourth to Rs840 billion from Rs1.140 trillion. “This is one of the reasons why the GDP growth rate will be low”.
Alternative Reforms
The author has advocated import compression strategy by levying additional regulatory duties on a range of non-essential imported items. Pasha argued that excluding essential imports, regulatory duty may be introduced at a rate of 10% to stop fast depletion of foreign exchange reserves.
On items that are governed through concessionary statutory regulatory orders Pasha has proposed 15% regulatory duty. He said this will curtail the annual import bill by $2.5 billion. He said these measures would generate Rs120 billion worth of additional taxes, helping to achieve this year’s Rs2.475 trillion tax target that otherwise sounds unrealistic.
Published in The Express Tribune, October 22nd, 2013.
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@frgb: No. Stop living in the delusion that there is still a middle class in the country. The middle class started being pushed to lower class since PPP government came into power. Lower-class doesn't consume smartphones? No, they do, they come cheap now. Vehicles? Doesn't the lower class use public transport? The lower class can even own houses. They are simply the ones who are stuck in life and cannot afford upgradation of any sort. The policies that you back will squeeze the "middle" class more. Eventually they cannot even dream of good phones, and will think thrice before riding their motor bike to work. Is that your solution to the drastic issues that our country is facing? Do you deem it fit for your generation? If you are of the elite then you will not understand. I am a commoner, so I am very well aware of the pressure these policies that you advocate will have on my pocket. Do you not know how much potential our country has? Do you understand why they are not letting KP and Baluchistan develop? Because if these provinces do, Pakistan will become sovereign. It is not a dream, this can really happen and we can be a part of it. Lastly, of course you can write whatever you want, but do you really want to support policies that are bad for the common man? I am not against you frgb, I am with Pakistan. I boil and bleed when I hear someone selling their organs to feed their kids, do you want to support these apathetic rulers in digging further deeper into us? They are already to our organs.
@The Failed Rebel: The lower classes don't consume high end smartphones. Neither do they own vehicles and consume fuel. So I don't understand what you are on about?
POL products make up the largest share of our imports. They are also easily taxed with much less leakage. So in the short term this is what we have to do.
Finally I will write what I want. If it makes you angry you should take it out on your computer monitor. Maybe smash it with something blunt and heavy?
@frgb: You are clearly not aware of the tough situation in the country the lower-class people are facing. Your suggestion, is offensive and shows the lack of vision you have over policy. You think all the importers will register, and will file tax returns with full fidelity? NO. Pakistan should start excavating minerals in Baluchistan and KP, this is the only viable solution to its problems. Please do not be offended, but your statement really boiled my head. Taxing the middle-class and the lower-class will do NOTHING for Pakistan. The elite-class is in the NA. They will never pass bills to tax themselves. Write with sympathy and not apathy towards the general public. Watch before you open your mouth.
Friedrich-Ebert-Stiftung became infamous in Sri Lanka recently because it was interfering in the country's affairs. But I guess that's par for the course for foreign NGOs and IFIs.
Introducing import taxes might work. They can start by taxing mobile phones, especially the high end phones. The biggest impact though can be made by increasing POL prices. This will not go down well with the public but it will have a huge impact on our BoP.