Adjustment without reform

July 10, 2019

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NOW that the detailed documents connected with Pakistan’s latest IMF programme have finally been made public, it is possible to get a deeper look at what exactly the government has committed to. One thing that is now clear is that, in its rush to finalise the programme, the government has deferred most decisions concerning any serious policy reform. As a result, the programme is best described as all adjustment and no reform. The depth of the adjustment is serious indeed, testifying to the magnitude of the pressures the government has been struggling with ever since it came to power. However, beyond a fierce revenue thrust and some steep targets to build foreign exchange reserves, there is little else. Some legislation to ensure greater autonomy for the State Bank and the power sector regulator, Nepra, has been committed to, but a closer look reveals that even the thrust of this legislation will be to ensure that both these bodies can play their role to support the adjustment more than anything else. There is a small list of state-owned entities scheduled for privatisation, but besides this there is only a commitment to prepare a more detailed roadmap down the road for what to do with the bigger SOEs. Even on the taxation side, the commitments on the quantum targets for revenue collection are very ambitious and detailed, but the commitment for reform of the tax machinery is vague. “Over time, the authorities are committed to taking steps to transform the GST into a broad-based VAT” the staff document states, and leaves it at that.

Meanwhile, there is nothing vague about the quantum leaps in revenue collection that the government is now committed to. In the words of IMF Mission Chief to Pakistan Ernesto Ramirez-Rigo, “the number one priority is revenue mobilisation”. This year’s tax plan is already off to a bumpy start, with threats of strikes popping up around the country in the first few days of the fiscal year. But the government has committed to virtually doubling this year’s total revenue collection by FY2024. If this year it has to fight to collect Rs5.5tr, by the end of the programme the government says it will bring this figure to Rs10.5tr. This may well be possible, given strong political ownership, aggressive follow-up, reforms to restore trust between the tax collector and taxpayer, and widespread participation in documentation efforts. But it is an uphill battle, and the details of the programme just released show that the climb is a long one.

It is possible that, in the months to come, further structural reform measures will be added to the programme and a more robust vision for putting the economy on a more sustainable vision will emerge. But, for now, all the government has as a strategy is crisis management for three long years.

Published in Dawn, July 10th, 2019