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Tougher days: ahead IMF loan


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THE government and the market are jubilant over the ‘successful conclusion’ of a new loan of $5.3bn from the IMF. And why not? The loan will ease pressure on diminishing foreign exchange stocks and relieve the government of worries of how to repay over the next 12 months what the country already owes to the Fund. But is it really a ‘step forward’ for the new government, which had promised voters so much? Although the announcement of the agreement on the loan hides more than it reveals, from whatever has so far been divulged it is clear the people should brace themselves for greater hardship. When Finance Minister Ishaq Dar said a “better tomorrow dawns only when the requisite pains are borne today”, he was signalling towards a tougher future for the people in whose name the loans are secured and who must repay these generosities with sacrifices.

The help from the IMF is necessary not only to repay its existing debt but also to obtain budgetary support from other multilateral lenders. However, the government has not lived up to its pledge of not accepting tough conditions, such as the ones which would raise the energy prices to prohibitive levels, stifle investment and fuel inflation. All the high talk that Mr Dar had indulged in over the last few days was little more than rhetoric to begin with. Some of the steps demanded by the IMF had already been incorporated in the bud-get — raising tax revenues (albeit through the old practice of burdening existing taxpayers), liquidation of the power-sector debt, etc. Others, like a hike in borrowing costs and increase in electricity and gas prices, have also been initiated and now the gap will have to be met before September when the Fund holds its meeting to give the final nod.

Still Mr Dar is not sure if the Fund will give him the additional $2bn — over and above the amount agreed on so far — he desperately needs to match the foreign exchange outflow. Nor is anyone certain if all the provinces —– especially Sindh and KP where the PML-N’s opponents rule — will agree to cut their expenditure to cut fiscal deficit to 6pc from the budgetary target of 6.3pc when the minister takes the agreement to the Council of Common Interest for broader political ownership, which is another condition for the loan. The IMF loan and support from the other lenders will provide only some breathing space for the government. It will have to take measures that hurt if it wants to fix the economy.

Comments (6) Closed

dubaa Jul 06, 2013 08:22am

Of the $5.3 billion, how much goes to the public and how much to the POCKETS of the elected LOOTERS..?

Zahoor Motiwala Jul 06, 2013 11:14am

Rhetoric and cosmetics cannot work! What we need is radical change. The various interest groups that are 'consulted' by our policy planners (!) are only interested in self perpetuation. Free market economy as is being practiced in Pakistan is only increasing the gap between the have's and the have-not's.

The global financial meltdown of 2008 and other events clearly prove that even the west has not yet been able to tame the free market beast. The fat bailout packages, executive bonuses, and the resultant movements like Occupy Wall Street clearly show that there is popular resentment against big businesses among the masses.

Pakistan needs a radical rethink, re-design and thorough re-engineering of its finances and financial management.

Everybody talks of leakage of revenue and the need for changes in the taxation system but has any thought been given to the overall ecosystem of our revenue and expenditure model? Our system of taxation and the tax-bureaucracy is skewed against the state and favors the players. The laws and due process all work in favor of the evaders, the corrupt and the 'middle-man' (read: Tax Advisers and Lawyers).

If a survey is conducted of ALL litigation pending in various courts and tribunals that have a revenue impact, the amounts involved will be mind-boggling. However, since the law and the process is skewed in favor of the crooked and the corrupt, they play the system to their advantage and hire advisers, lawyers and consultants at fat fees to keep delaying the final arbitration and judgement. This includes the local as well as the multinationals.

There is a lot of talk of trade with India. The policy planners will be well advised to learn a few tricks from the stringent tax laws there that will put the fear of God and the law in the hearts of the evaders and the corrupt. Perhaps, a dedicated Economic Crimes Investigation & Prosecution Agency with competent people and support of specific legislation for fast-track decisions and severe penalties is the need of the hours. Perhaps, the NAB laws could be used more effectively and efficiently against tax evaders and white collar criminals (and not for political victimization) who monopolize the business and trade associations and sermonize on TV talk shows. Most importantly this exercise should be totally blind, impartial and fair.

It is time that we tighten our belts and do something radical and fast.

As the saying goes: It is "Now or Never" -and never is not even

Syed Ahmed Jul 06, 2013 07:17pm

Pakistan Muslim League-Nawaz chief Nawaz Sharif vowed on June 2, 2013, that his government would break the begging bowl, stating Pakistan would have to acquire economic autonomy to regain respect in the comity of nations. There is a way out. PML-N leader Nawaz Sharif mudt repatriate the the financial gains of $418 million made during his twice stints as Prime Minister of the country. (Book entitled Capitalism

bubba Jul 06, 2013 08:27pm

What exactly has the IMF asked Pakistan to do that is so onerous? It's asked you to tax the wealthy, collect taxes you already levied, cut back on subsidies you can't afford and otherwise live within your means like the rest of the World? It's time for the Pakistani govt and this Editor to be honest with the citizens and explain exactly why IMF isn't the bad guy and why the IMF requirements are reasonable and s/b implemented regardless of IMF loan.

(Dr.) B.N. Anand Jul 06, 2013 08:57pm

I do not think there is any reason for Pakistan govt. or the people of Pakistan either to rejoice or feel happy in being able to get the IMF loan. After all it is a loan and not a grant. Loans are always meant to be paid back with interest. As most of this loan will be used to pay off the previous loans and any addition to foreign reserve would indeed be a case of simple illusion. The need for Pakistan and the people is to develope the domestic economy and to pay off the past loans from its earnings rather than by borrowing. How long the economy will survive by borrowing again and again is for the people to introspect. Are they prepared to adopt austerity and pay the taxes and increase the exports? After all, no nation can survive by just borrowing alone and that too again and again.

Mohammed Jul 07, 2013 12:03am

The rich don't want to pay taxes and the poor cant afford to, so we have the IMF providing funds for this Ponzi scheme.