Will PTI be forced to embrace IMF?
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2018-10-05 05:35:42

Will PTI be forced to embrace IMF?

 

Opposition leaders slammed the government for ‘accepting IMF conditions’ within the first 100 days of its 5-year tenure in a session of the National Assembly. Meanwhile, officials from the international monetary fund will conclude their meetings with top government officials from Pakistan today, (Thursday).

The opposition criticized the ‘mini-budget’ the Pakistan Tehrik-i-Insaf government presented last month. Hina Rabbani Khar, former foreign minister and member of National Assembly elected on the Pakistan Peoples Party’s ticket, argued that ‘increase in the prices of gas…shows that the government has already accepted the IMF conditions.” In the first week of September, Prime Minister Imran Khan approved an increase of 46% in natural gas price, as advised by the OGRA (Oil and Gas Regulatory Authority).

This brings us to the question of whether or not the PTI-led government will go to the International Monetary Fund, contrary to their claims so far.

This move was heavily criticized back then since the PTI chief had promised not to add to the burdens of the common man in his election campaign. An official from the government, however, responded to criticism by saying, “there is no other way out.” Ms. Khar also stated that the government had added to the misery of the poor. However, the nature of tax hikes in the mini-budget shows that is not the case.

The excised duty on cars of 1800cc and above has been doubled. There will be additional regulatory duties on about 312 items, including expensive smartphones. Mr. Asad Umar, the finance minister, said at the floor of the parliament that the increase in taxes was targeted at the rich and upper classes.

 

A look at the budget brief for 2016-17 shows the myriad problems that the economy of the country is suffering from. Indirect taxes collected by the Federal Board of Revenue were Rs 2,142,160 million while direct taxes collected amounted to Rs 1,378,840 million. In other words, the burden is on the consumer to make up for the government’s inability to collect direct taxes.

The overall expenditure during 2016-17 had been estimated at Rs, 4,894.9 billion out of which the share of current expenditure (i.e. expenditure for the day-to-day functioning of the government) was Rs 3,844 billion (70%) and development expenditure was only Rs, 1050.9 billion (30%). This means that the government is mostly pre-occupied with ‘running the government’. Increasing development funds would entail a decrease in current expenditure, which is both politically and financially not feasible.

The minister for finance and the advisor for commerce accompanied. Pakistan invited Saudi Arabia to become part of the China-Pakistan Economic Corridor and finance some projects.

A major portion of current expenditure comprises of salaries and pensions of government servants. Since there aren’t enough funds for development projects that could help accelerate growth in the long run, the government inevitably has to look for finance from ‘external sources’, which include loans, grants, and aid. The revenue from external sources was calculated to be Rs 996,287 million in 2016-17. Bank borrowing amounted to Rs 741, 367 million.

Time and again, the sitting government of Pakistan has opted to go to the IMF for temporary relief in the country’s fiscal crisis. And the country never manages to get out of the debt trap. This brings us to the question of whether or not the PTI-led government will go to the International Monetary Fund, contrary to their claims so far.

Minister for finances, Asad Umar, said at the floor of the parliament that going to the IMF was not a feasible idea. The loan they provide comes with strings attached, that demand cuts in welfare spending. The government probably can’t afford to make such a move, given that the PTI wants to contend the next elections.

Mr. Umar has rightly pointed out that the current economic woes Pakistan is facing are not the fault of any single political party but have been for at least 10 to 15 years in the making. Prime Minister Imran Khan, Minister for Information Fawad Choudhary and the finance minister have all indicated that they will look sources of finance from their ‘friends’.

“It’s not the money as much as the credibility that we need the IMF for,” a government official said, adding that “at the moment there is no plan for an approach to the IMF”.

The PM had visited Saudi Arabia in his first foreign visit abroad. The minister for finance and the advisor for commerce accompanied. Pakistan invited Saudi Arabia to become part of the China-Pakistan Economic Corridor and finance some projects. Whether or not Riyadh joins Beijing in CPEC, a Saudi delegation has agreed to sign some MoUs that will allow the establishment of an oil purification facility at Gwadar with a production capacity of 110,000 barrels per day.

The Saudi delegation which is in Pakistan for a four-day-visit will also visit gold and copper mines in Baluchistan to ascertain prospects of investing there as well. However, this may still prove to be insufficient. The budgets deficit and the debt trap can’t be helped by help from ‘friends’ alone. A team from the International Monetary Fund, led by the IMF’s mission chief for Pakistan Harad Finger, is due to complete their week-long visit to Pakistan.

 

They have met with senior officials from the ministry of finance and the federal board of revenue. The minister for finance will also meet IMF officials to discuss policy options. Reportedly, the members from the IMF team have expressed reservations about the government’s attempt to engage with ‘friends’ to somehow find ways to secure sources of finance other than the International Monetary Fund. At best, this would delay going to the IMF for the government’s first 100 days.

The team had gathered huge amounts of data from the ministry of finance, FBR and the State Bank. The IMF has advised the government to keep an eye on global oil prices. Oil forms a major chunk of the country’s import bill. According to Bloomberg, oil prices will rise next year because OPEC members have agreed to maintain production cuts. That could mean trouble for energy-starved nations like Pakistan.

Will the government kick the can further down the road and choose to go to the IMF like previous governments? That is likely to add to the growing debt the country is mired in.

According to government officials, engaging with IMF is simply a means to ensure the country’s reputation as a credible and stable market. Nations in the bad books of IMF can find it difficult to obtain finance from external sources. “It’s not the money as much as the credibility that we need the IMF for,” a government official said, adding that “at the moment there is no plan for an approach to the IMF”.

To be fair, the PTI-led government didn’t create the mess the country is in. It merely inherited the result of a series of poor policy decisions and missed opportunities that go back at least a couple of decades. That being said, the Pakistan Tehrik-i-Insaf has made tall claims about strengthening the country’s institutions and stimulating indigenous growth.

Will the government kick the can further down the road and choose to go to the IMF like previous governments? That is likely to add to the growing debt the country is mired in. Or will the government take decisions that will be painful politically but might put the country’s economy in the right direction? All this should become clear by the end of this year.

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