KARACHI: It’s rare for a public intellectual to call a full-fledged economic crisis a “great opportunity” that mustn’t go to waste.
“I’m happy we’re in this crisis,” said Ali Salman, an economist with a libertarian bent who serves as the executive director of Prime Research Institute, an Islamabad-based think tank.
Addressing a seminar titled ‘International Monetary Fund (IMF)-Pakistan deal: impact and the way forward’ on Saturday, Mr Salman said the Washington-based lender should demand concrete structural reforms from the government instead of settling for “creative accounting” gimmicks that only kick the can down the road.
According to Prime Minister Shehbaz Sharif, the IMF has demanded conditions that are “beyond our wildest dreams” for the revival of the stalled $7bn loan programme.
The country needs foreign exchange to continue imports of necessary nature but the IMF has linked the disbursement of dollars to economic reforms that have a high political cost.
He praised Hafeez Shaikh, who took the reins at the Ministry of Finance from Asad Umar in 2019, for putting the economy on a path to stabilisation. But his replacement, Shaukat Tarin, went on a spending spree and wrecked the economy by the start of 2022. Fixing the petrol prices was the beginning of the new phase of this economic crisis, he said.
Unlike most mainstream analysts who swoon over Miftah Ismail, who replaced Mr Tarin as finance minister in April 2022, Mr Salman said his policy of blanket contraction of imports damaged the economy.
“About 90 per cent of our imports are non-luxury,” he said, adding that economic activity came to a halt, reducing the trade deficit in the short run but creating bigger problems in the long run.
Ishaq Dar, the incumbent finance minister, has been an unmitigated disaster for fixing the exchange rate and dillydallying on the IMF loan programme. He accused Mr Dar of indirectly creating a black market of dollars in the country for the first time in 30 years.
Mr Dar’s poor signalling on the restructuring of external loans also put significant pressure on the rupee amidst declining foreign exchange inflows.
A strong proponent of flat taxation, Mr Salman opposed the proposal to increase the general sales tax (GST) rate from 17pc to 18pc to help meet the IMF’s demand for higher revenue.
Instead of imposing more and higher taxes on the already taxed, he suggested that exemptions to businesses costing between Rs1.4 trillion and Rs2tr a year should be done away with immediately. Tax exemptions enjoyed by large agricultural landholders and businesses under the Army Welfare Trust should be withdrawn, he said.
As for state-owned enterprises like Pakistan Steel Mills, he said its land should be handed over to a real estate trust and its employees be paid salaries via its dividends.
Speaking on the occasion, former chairman of the Bank of Punjab Dr Pervez Tahir said the Public Sector Development Programme (PSDP), under which the federal government carries out development projects, should be put on hold for one year. The freeze should apply to the already-underway development projects as well in order to help the government put its fiscal house in order.
Taking part in the discussion, Sustainable Development Policy Institute economist Dr Sajid Amin said political parties should avoid playing politics on the IMF programme.
The country is likely to witness an economic growth rate of 1-1.5pc in this fiscal year even though some independent economists have predicted negative growth, he said.
Policymakers should prepare for a debt re-profiling exercise as soon as the IMF programme is revived, he added.
Published in Dawn, February 5th, 2023
