The government of Pakistan has signed an agreement with the International Monetary Fund (IMF). The agreement has structural benchmarks, performance criteria and monitoring instruments.
Yes, it is one of the most difficult of programmes that the IMF has ever designed. Yes, the agreement has overly ambitious revenue collection targets. But, because our government has signed it we must now strive hard to comply with the structural conditions and fulfil the performance criteria.
The essence of the entire programne is the extremely aggressive revenue collection target-from Rs3.8 billion collected in 2018-19 to a target of Rs5.5 in 2019-20 to Rs10.5 trillion within the next four years. To say the least, an awfully difficult target but the agreement has been inked and we must, therefore, give the target our best shot.
According to a staff report released by the IMF, Pakistan has entered a high tax environment for the foreseeable future with Rs1.56 trillion additional taxes this year, followed by another Rs1.5 trillion next year and yet another Rs1.31 trillion the year after. In effect, the lone focus of the programme is high taxes. There’s absolutely nothing about reforms; absolutely nothing about job growth; absolutely nothing about education or health and absolutely nothing about land reforms.
To be certain, our real issues are reforms, job growth, education, health-and land reforms. Perhaps, those should be the issues for the leaders that we have elected – not for the IMF. The IMF programme talks about making Nepra (the National Electric Power Regulatory Authority) more independent. Great stuff. But Nepra needs to be ‘reformed’ to protect the interests of 208 million Pakistanis-against the interests of the Independent Power Producers (IPPs).
The IMF programme is all about ‘adjusting the electricity tariff’ – what we need is to ‘reform’ the electricity sector in order to make our tariff internationally competitive (Vietnam 7 cents, India 7 cents, China 9 cents, Pakistan 11.5 cents). Similarly, we need to ‘reform’ our gas sector in order to make our tariff internationally competitive (Bangladesh $3, Vietnam $4.2, India $4.5, Pakistan System $5.4, Pakistan RLNG $11).
Our elected leaders also need to worry about the social impact of the IMF program. In the 1990s, an IMF programme doubled poverty in Indonesia, tripled poverty in South Korea. In the 1990s, the unemployment rate in South Korea went up four-fold; up three-fold in Thailand and up ten-fold in Indonesia.
I am truly amazed at the simplicity of the thought process behind the IMF programme. Our problem: the budgetary deficit is too high. The IMF’s solution: jack up the revenue collection target by 45 percent. Our problem: the trade deficit is going through the roof. The IMF’s solution: keep devaluing the rupee. The IMF’s solutions are all quantitative. We need qualitative reforms. The budgetary deficit is too high because our government’s current expenditures are up 500 percent over the past 10 years. Our trade deficit is going through the roof partly because our input costs are too high.
The IMF must also learn not to ignore the ‘social and political context’. The PTI is doing all this at a huge political cost. Yes, there will surely be social costs in terms of an inflationary spiral and increased unemployment. Similar programmes in Latin America “led to high unemployment…..which in turn contributed to high levels of urban violence.” In Africa, “civil strife….has been a major factor setting back its development agenda.” In Pakistan, the tax plan is pitching Pakistan’s entire business community against the state.
The IMF’s programme is not a solution to our problems. What we really need is ‘reforms’ – not mere adjustments. Our salvation lies in reforms – not in adjustments. What we have is adjustments galore. Zero reform