When the International Monetary Fund tells you that you are doing fine and advises you to continue with the course so as to be able, in due course of time, to join the group of fast growing economies of the region/world, it is, indeed, time to rejoice. But this is not the first time that the Fund has given Pakistan a pat on the back. The last time was when Islamabad completed a short Standby Arrangement signed in June 2000 when the economy was being managed by the former prime minister Shaukat Aziz. Even before that we have had the satisfaction of being told we are doing well mid-way through a number of past programmes which eventually had to be abandoned because we refused to make the rich share the economic and financial hardships resulting from the Fund’s prescribed structural reforms.
If the Fund is saying that we have averted the balance of payments crisis (thanks largely to the collapse of world oil prices) and that growth is rebounding, their assessment must be based on the data provided by our finance ministry which has a reputation of adding colour to the most miserable figures. The drastic reductions effected in the energy subsidies have impacted the common man — not the rich for obvious reasons — so emphatically that you hardly need the finance ministry’s data-backed evidence to believe it.
The happy news that tax reforms are yielding results has been hailed publicly by the rich and not-so-rich members of parliament, including the ruling party led by the prime minister, his younger brother and other members of the clan in their respective declarations for the last tax year made public recently.
The Fund is expecting the economy to grow around four per cent of the GDP this year and the fiscal deficit to remain below five per cent. On the face of it, or more precisely, going by the data being produced by the finance ministry, there is no evidence to controvert these expectations of the Fund. But if the energy shortage has pushed the government so far as to force it to impose evening hour limits on shops, business houses and marriage halls, then, perhaps, the Fund is looking at some highly optimistic presumptive data of the finance ministry rather than a realistic one.
More so, because the country is at war and funding Operation Zarb-e-Azb, which will be completing a year in a month’s time, would surely have expanded the gap between income and expenditure upsetting the current year’s budgetary balance by the billions not taken care of in the 2014-15 federal budget. The Coalition Support Fund of a billion dollars promised by the US for the year ending 2015 as the one budgeted by the US earlier had expired on December 2014 would only be made available after the usual close scrutiny of the vouchers submitted by our Army which might take six months into 2017 or more. So, in the meanwhile, Zarb-e-Azb would have to be funded by the federal budget necessitating domestic borrowing which would surely seriously threaten the current year’s fiscal deficit target.
The Fund believes that Pakistan has made progress on improving the tax system by eliminating a significant number of Statutory Regulatory Orders which grant tax exemptions and concessions, “riddling the tax system with loopholes”. This and other tax base-broadening measures, in the opinion of the Fund, have yielded good results as the government has also “made some headway in administering taxes — catching the people who are evading taxes, making sure that they pay, and collecting taxes in a more efficient manner, but much more is needed”. If all this is true then one would like to ask our finance ministry officials why are we once again falling far short of our tax collection targets. No matter how you try to tackle Pakistan’s tax problems, especially the income tax issues, there is not going to be any improvement in tax collection or for that matter improvement in our ability to finance even our essential needs without domestic and foreign borrowing unless we tax the incomes from agriculture. This loophole is used by almost all the tax evaders, even the professionals like doctors, lawyers, engineers, etc.
Published in The Express Tribune, April 15th, 2015.