Finance Minister Muhammad Aurangzeb says his singular agenda is to focus on the implementation of much-needed reforms and to negotiate a new larger deal with the International Monetary Fund (IMF) to pull the economy out of the crisis.

“No debates, no waste of time — just a steadfast commitment to implementation,” the former Habib Bank chief told Dawn soon after being sworn in as the federal finance minister. In essence, it was a strong message that he would accord top priority to structural reforms.

Referring to the need for effective taxation of agriculture, real estate, and the wholesale sector, he said extensive work has been done regarding the implementation stage, and the designer and partners have already been finalised.

His first priority would be to plug leakages in the Federal Board of Revenue (FBR) through end-to-end digitalisation to provide fiscal space for the government.

Past attempts to spur growth without deep-rooted stabilisation ended in an external sector crisis

Almost the entire 30 per cent jump in FBR tax revenue, so far, this fiscal year is attributed by analysts to high rate of inflation. The tax-to-GDP ratio is less than 9.5pc and Rs1.7tr is stuck in the legal process.

Praising the Special Investment Facilitation Council, the finance minister expressed confidence that it would aid in implementing economic policies.

The finance minister observed that GDP growth is directly linked to macroeconomic stability. Past attempts to spur growth without deep-rooted stabilisation ended in an external sector crisis.

The Economic Affairs Division (EAD) says that prudent external debt management coupled with strong institutional arrangements is necessary for the management of external debt and repayment capacity of the country.

For a longer IMF programme to be smoothly implemented, a gradual easing of its stiff terms is required to create fiscal space

Borrowings can be productive for the economic growth of developing countries as long as the economic returns are higher than the cost of borrowing funds, the EAD stressed.

Pakistan has not used development assistance prudently and effectively, with long delays in the execution of projects and cost overruns, making them financially unviable.

Analyst Shahbaz Khan says that with Pakistan’s debts now reaching approximately 91pc of the GDP and the economy declining rapidly, very little progress has been made towards economic independence.

Certain IMF experts have found during their research that development aid has a robust effect on growth. Simultaneously, non-development is mostly growth-neutral and occasionally negatively associated with economic growth. Much of Pakistan’s borrowings are for repayments of old debts or balance of payments support.

To avoid unsustainable debt, the government has reportedly decided that foreign funding will be secured only for priority sectors. Proposals for restricting lawmakers’ funds are under consideration of authorities and the centre aims to drastically reduce federal-funded provincial projects.

Pakistan has to come out of the mindset of doing patchwork to deep-rooted economic problems. Macroeconomic stability needs permanency, and for that, a larger and longer duration IMF programme is required. The GDP growth path is through macroeconomic stability, explains Mr Aurangzeb.

Economic literature demonstrates that it is normal for imbalances to occur in the process of economic growth and development. These imbalances need to be addressed promptly without allowing the issue to linger and become a serious crisis.

Durable stability cannot be achieved without production-oriented economic growth by maximising the use of indigenous resources to meet domestic demand and needs of the people through balanced and harmonised development of all sectors and regions and the removal of unacceptable levels of household income disparities.

For a longer IMF programme to be smoothly implemented, a gradual easing of its stiff terms is required to create fiscal space to spur economic growth, provide decent jobs and reduce poverty, ie to achieve growth with stability in a much shorter time. This is necessary to create a congenial political environment to avoid political risks/spanners.

It is also worth noting that Pakistan’s United Nations (UN) envoy, Ambassador Munir Akram, recently urged the UN to strengthen its commitment to supporting developing nations in tackling debt sustainability challenges. However, more significant is his observation that support should come through “innovative financing mechanisms.”

It cannot be denied that at least some of the IMF’s decades-old prescriptions have become outdated in these turbulent times.

As a professional banker, one hopes that the finance minister will be able to use his technocratic skills to quickly clinch a new and better deal with the IMF — secure more space in the Fund’s programme for sustainable and inclusive growth while avoiding the risk of foreign debt default.

The country’s challenges can be better addressed by persuading the IMF to adopt innovative financing mechanisms to suit the changing times.

Then, in case of unavoidable slippages owing to external or domestic shocks, or any genuine reason, the finance minister should be able to secure the IMF waivers to avert hiccups in the execution of the agreed programme.

Published in Dawn, The Business and Finance Weekly, March 18th, 2024

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