The PTI government’s confusion over IMF program is costing the Pakistani economy heavily. From Prime Minister Imran Khan to finance minister Asad Umar gave conflicting and confusing statements in the last six months regarding IMF program. The government failed to put forward a clear position in this regard. This confusion of going or not going to IMF for a loan spread confusion and uncertainty in the market. The business confidence dipped in last six months. The foreign and local investment is on the decline.
The better option for the PTI government was to make a clear decision in the beginning whether to go for an IMF package or not. That early decision could have clear the air on this issue. The markets reacted negatively on the indecision of PTI government.
The recent downgrading of Pakistan’s sovereign credit rating to ‘B-‘from ‘B’ by Global credit ratings agency Standard & Poor (S&P) is the result of this confusion. In its statement, the global credit rating agency maintained that talks with the International Monetary Fund (IMF) took longer than anticipated and that any resulting reforms, whether under the programme or otherwise will be less advantageous than previously hoped. “S&P believes the reform timeline will be more protracted in nature,” it added.
PTI leadership tried to give the impression that it will work out an alternate plan to avoid IMF program. It was hoped that PTI government will come up with a clear strategy and plan to revitalise and energise the economy and to introduce meaningful reforms. But nothing really happened. Instead to get loan from IMF, the government borrowed from friendly countries. Despite all the money that Pakistan has received so farand the pledges made by friendly countries, Pakistan still might end up asking for an IMF loan.
It was a flawed thought and policy to delay the IMF loan and build up the foreign reserves and improve the financial situation before finally negotiates an IMF package. This policy was based on the misconception that it will soften the IMF conditionalities for the loan. The IMF attaches certain conditions to every country that seeks an IMF bailout. The exact conditions depend on the concrete situation of a country. It was a wrong thinking that heavy borrowing from friendly countries will ease the IMF conditions.
The IMF works within the framework of dominating world economic order and ideology. The free market economy and neoliberalism is the dominating economic ideology of present times. IMF imposed the conditions in line with free market economy and neoliberal policies. The only way to avoid the harsh conditionalities of IMF is to develop productive forces and to look for indigenous solutions of national economic problems.
Prime Minister Imran khan idealise Mahatir Mohammad of Malaysia because he refused to take IMF program and instead went for alternate strategy and plan to lift the Malaysian economy after the currency crisis in late 1990s. Instead, he went for the reforms, reduced deficits and invited multinational companies to invest in Malaysia. He did all that was necessary to put Malaysia back on track of growth and progress.
That is clearly missing in the PTI government’s economic policy and strategy. Strong decisions and solid policies needed to avoid IMF program. If PTI really wants to follow the footsteps of Mahatir Mohammad, than it should have embarked on the road of reforms. Simplify the tax system. Reduce the indirect taxes. Pakistan needs to reduce number of taxes to mainly four, progressive income tax on the individual incomes. Reduce tax burden on the industry and rationalize corporate tax in line with rest of the world. Introduce agriculture tax without any exemption beyond a certain lad holding. End all sorts of exemptions on taxes and tariffs. Reduce the rate of GST from 17% to 10% but cover all sectors of economy under GST.
Spend more on human development and change the education system to develop skills and innovation. Expand the tax net and made it mandatory to register with the authorities to initiate any sort of commercial activity. Industrialisation and to expand the manufacturing base should be the focus.
The borrowing either from IMF or friendly countries will only provide a breathing space and short term relief. The real task is to implement the real reforms in the economy to reduce dependence of external sources and borrowing to plug the gaps between the income and expenditures.
Pakistan cannot continue with the current policy of borrow and spend for long time. Pakistan needs to undergo radical economic reforms to change the structure of the economy and to unleash the real potential of this great nation of 220 million people.
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20 July, 2019