IMFs dictation Pakistan and International Monetary Fund (IMF) have concluded their fourth round of talks in Dubai in regard to release of the fifth tranche for $550 million to Pakistan. IMF team had refused to come to Islamabad because of the situation emanated from azadi march and inqalibi march of the PTI and the PAT. Therefore, Finance Minister Ishaq Dar had to go to Dubai on Sunday for concluding talks with the IMF mission to Pakistan led by Jeffrey R. Franks. The IMF has observed that Pakistans economic indicators are improving with slight increase in Gross Domestic Product (GDP) and inflation on a downward trajectory. However, the IMF among other directions said State Bank of Pakistan should be given more autonomy and that the government should rationalize the electricity tariff. One can infer from this statement that the IMF wants that electricity tariff should be revised upwards. But this will result in inflation adversely impacting the common man, and also increase the cost of production, which will stir inflation. It has to be mentioned that Gross Domestic Product (GDP) growth indicates the general health of the economy. There is a consensus in economists that increase GDP does not necessarily mean welfare of the masses. In fact, in the absence of socio-economic justice the rich become richer and poor become poorer. Secondly, Pakistan continues to face trade deficit and current account deficit, as Pakistani imports are around $39 billion and exports hover around $22 billion; hence a trade deficit of $17 billion. After taking into account the remittances of expatriate Pakistanis to the tune of $14 billion, the current account deficit is $ 3 billion. Thirdly, Pakistans revenue receipts (Tax and non-tax) in 2014-15 are Rs. 3946 billion and revenue expenditure budget are Rs. 3901 showing a deficit of about Rs. 800 billion. The problem is that rate of savings is about 11 per cent, as inflation hinders the capacity to save, as it erodes the incomes of the people, especially salaried class and fixed income groups. However, the most serious aspect of our dire economic situation is the growing public debt, which amounts to Rs.13600 billion ($136 billion); foreign component is $62 billion and domestic debt in dollars is $74 billion. It was due to the accumulation of debt-mountain that Pakistan had to allocate around Rs. 1325 billion for debt-servicing alone. It is unfortunate that despite being a resourceful country, Pakistan has been able to pile up such a huge public debt. In fact, we have been producing less and consuming more; earning less and spending more. It should be borne in mind that the magnitude of the public debt limits the fiscal space to invest in human development, in infrastructure, and to enhance capacity to build strong defence. The threats faced by Pakistan have to be understood in the light of fast changing regional and international situation, which add urgency to revive the economy so that adequate resources could be allocated to defend Pakistans integrity and sovereignty. It is painful to note that every government in Pakistan continued to take loans by accepting and complying with harsh IMF conditions. Increase in the rates of utilities produces the multiplier effect, leading to cost-push inflation making it impossible for the local producers to compete in the world market. In the domestic market, people have to pay more for everything, which erodes the incomes of salaried class and fixed income groups, pushing more and more people below the poverty line. But this crisis is of our own making, as corruption has eaten into the vitals of the nation. The government should therefore restructure the public sector enterprises because on the average these state enterprises are causing of loss of more than Rs. 500 billion per year, in addition to wastages, corruption, loot and plunder in other government departments, which is estimated around Rs.1000 billion per year. If the government feels that it cannot make public sector enterprises profitable, then privatize them through transparent mechanism. Last but not the least; imports should be rationalized so that foreign exchange is not wasted on non-essential imports. To avert the economic disaster, the government must show zero-tolerance to corruption, tax evasion, wastages and mismanagement in public sector enterprises. It should learn to live within its means and reduce the non-development expenditure by curtailing perks and privileges of cabinet members and parliamentarians. In the past, in a quest to balance the budget or to keep the fiscal deficit within reasonable limits, the axe always fell on development expenditure.
Posted on: Fri, 16 Jan 2015 02:20:17 +0000
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