THIS week’s ‘staff level’ agreement announced by the International Monetary Fund with the government of Pakistan may have surprised many economic experts as it is no secret that there still exists a wide gulf between the country’s targeted and realised tax collection.
The resultant budget deficit stands at 7.4 per cent of the GDP and the country’s debt is projected at just under 79pc of the GDP. Growth has already fallen sharply to about half of what it was a mere three years back and continues to head southwards.
It is difficult to see how the deficit and the debt can be cut as the government will need to pump some stimulus into the economy while still battling double-digit inflation. A very tough, some would argue impossible, task.
According to reported figures in January this year, the shortfall in meeting the first six-month tax collection target was Rs287 billion, and this after the IMF, ceding to Pakistan’s request, had cut the annual target by nearly Rs265bn — that is, from Rs5.5 trillion to 5.23tr.
Perhaps the one area of some satisfaction to the economic managers, imported from the IMF and elsewhere, is the falling current account deficit. But with many of the CPEC-related frontloading capital transfers having happened and falling imports in a contracting economy, that is not surprising.
Continued IMF support must be seen against the backdrop of regional political developments rather than economic benchmarks.
The freefall of the rupee, initiated under IMF pressure, has tragically had little or no impact on exports. As a result, we have 14pc inflation, nearly one million more joining the ranks of the unemployed and a dramatic growth slowdown.
According to an econometric model used by one of the sharpest economists in the country, Hafiz Pasha, the growth figure is likely to be no more than 1.2pc. Dr Pasha fears another million are headed towards losing their jobs.
Against this rather dismal backdrop, the IMF said that a ‘staff-level’ agreement has been reached with Pakistan. After its executive board’s approval, expected in five to seven weeks’ time, the IMF will be able to release about $450m to Islamabad.
Traditionally, the IMF is known around the world for inflicting pain on the masses where countries have approached it for a bailout and has clamped down on large budget deficits and such high debt vs GDP ratios as Pakistan’s as part of its so-called structural reform programmes.
There is no doubt the masses are in agony here as well. However, with some of the key deficit and debt figures still showing no signs of declining, the continued IMF support must be seen against the backdrop of regional political developments rather than economic benchmarks.
It is clear that the Trump administration is very keen to get out of Afghanistan and asked the Pakistanis who have considerable influence over the Taliban to allow it to have a facesaving exit agreement which has been signed in Doha.
Many observers also suggest that even the bailout that came from Saudi Arabia in the initial months of this ‘same page with the military’ government was a link in the same chain, as US encouragement — rather than love for another Muslim nation in crisis — was behind Riyadh’s decision.
Pakistan will continue to play the good boy role till at least the US pullout is complete, though the modalities of the withdrawal are still to be worked out as also what numbers of American troops will, if at all they do, remain in Afghanistan.
A manifestation of Pakistan’s influence over the Taliban appeared to be the op-ed article written by naib amir Sirajuddin Haqqani of the famed Haqqani network, in the New York Times last week. Sirajuddin Haqqani used to be America’s enemy number one in Afghanistan.
It was Haqqani and his so-called network that were the subject of endless demands by Washington to Rawalpindi to ‘do more’ in terms of taking away space for the network to operate as it reportedly had safe havens and bases in Pakistan’s (now merged) tribal areas bordering Afghanistan.
If Donald Trump were to win a second term, Pakistan will continue to gain breathing space for being a good boy and delivering, at least for the time being, a more flexible Taliban that will make public claims about being committed to pluralism in Afghan society including equality for women as Haqqani’s NYT oped did.
If Trump is not returned to the White House an uncertain scenario will unfold for Pakistan. Islamabad will need to learn to stand on its own feet in terms of its economy. It will need to quickly set its own house in order. This will be a huge ask. How huge? Here is an example.
My former colleague Moni (Munizah Alam) Shah, who worked at The News in the early 1990s, moved to the United States some 25 years ago. She has not worked in, or got an income from, Pakistan for over two and a half decades.
Having a longing to return one day to Pakistan, in 2017 she transferred a not insignificant amount of money from the US in order to purchase a residential plot so she could build a house later. All dues were settled, taxes paid and the deal was concluded.
Last week at her in-laws’ house in DHA Karachi, a letter was received addressed to her from deputy commissioner, Inland Revenue Unit III, range III, Zone II, RTO II, Karachi Tax House, demanding that she pay Rs0.7025m as tax as this was outstanding on her account. She had until this last Friday to pay or face confiscation of her assets and even imprisonment.
She is livid and says she does not have a tax account in Pakistan and has hired a lawyer as “I will fight this tooth and nail”. The lawyer has told her there are innumerable cases such as hers. Is this how the ‘tax net’ is being expanded? With such a decrepit system how on earth are we going to meet our tax collection targets?
The writer is a former editor of Dawn.
Published in Dawn, March 1st, 2020