SEEMINGLY nervous about the political fallout, the government has decided to delay the much-criticised IMF-mandated reforms and change the course of the economy from ‘stabilisation’ to growth from the next financial year.
The indication came from Finance Minister Shaukat Tarin who told journalists that the government had told the ‘global lender that it will neither hike the electricity tariffs nor increase taxes’ because it does not want to further burden the poor and salaried classes. Unveiling the annual Economic Survey of Pakistan 2020-21 that documents a government’s economic performance for the outgoing fiscal year, Mr Tarin said both the government and the IMF want sustainable economic growth. But both disagree on the path that Islamabad must take to attain the objective. It is being suggested that Islamabad is trying to use its enhanced leverage with the US as the Biden administration prepares to complete the exit of US troops from Afghanistan by Sept 11.
The administration believes that its improved leverage with the US has given it some space to renegotiate the conditions of the $6bn IMF programme as it plans to stimulate economic growth through heavy fiscal stimulus ahead of the 2023 elections.
The cushion provided to the external sector by an unprecedented growth in remittances sent home by overseas Pakistanis has also reduced the country’s dependence on IMF dollars in the near term. This does not mean that Islamabad is going to terminate the programme. IMF support is important for Pakistan to access external funding as well as to get off the FATF’s ‘grey list’. Hence, the ‘ongoing negotiations’ between Pakistan and the Fund over the terms of the programme are likely to linger over a period of time. What happens next will largely depend on how the talks between Pakistan and Washington on future cooperation in this region progress.
Indeed, the minister was spot on when he pointed out that Pakistan needs to grow by 5pc to 8pc to alleviate poverty and create jobs for about 2m young men and women entering the market each year. Encouraged by an unexpected broad-based GDP growth rate of almost 4pc, which is almost double the target of 2.1pc for the present fiscal year, in an economy crippled by the Covid-19 pandemic, the government has decided to boost its investment spending on large infrastructure schemes to Rs2.1tr, including the federal share of Rs900bn and the provincial investment of Rs1.2tr. The new strategy will reverse the government’s previous policy of drastically reducing public spending to slash its budget deficit — this smacks of the plan employed by the previous PML-N administration to grow the economy during its tenure.
Nonetheless, Mr Tarin has promised that growth will not be driven by debt. How does he plan to collect the targeted Rs5.9tr in taxes to support his growth agenda? We should know the answer today.
Published in Dawn, June 11th, 2021