Poreg View: This headline in a leading Pakistan daily does not come as a surprise and it is in line with the known IMF-WB philosophy. In their excessive eagerness to check balance of payments problems and mounting fiscal deficits, the Bretton-Woods twin have been trotting out such an advice for years with no concern whatsoever about the political costs of following the prescription.
Mehtab Haider reports in the News International that a senior official of the IMF had spoken of the need for more taxes. The advice followed IMF’s outlook for Pakistan which is expectedly not rosy, and is ‘challenging’ for the current year ending June 2012. Since the global investors have become increasingly risk averse, Pakistan with all the risks attendant upon being the epic-centre of terrorism, may see limits to the capital inflows.
$11 billion IMF loan programme ended in September after Pakistan failed to meet the committed fiscal and other targets.
Pakistan’s current account deficit stood at $220 million (provisional) in October, compared with a deficit of $1.034 billion in the previous month. For the July-October period, the deficit stood at $1.555 billion, compared with $541 million in the same period last year, according to data from the State Bank of Pakistan.
During the discussions with the IMF, Pakistani authorities agreed with the IMF view that containing the budget deficit in 2011/12, a cautious monetary policy, and a responsive exchange rate would reduce vulnerabilities, contain inflation and protect Pakistan’s international reserves. Both sides know this is easier said than done, more so when Islamabad has very limited room for maneuver since its tax base has no elasticity and most tax dodgers and tax evaders are from the elite class. Several political leaders are accused of stashing away their wealth in foreign banks. Figuring top on the list is President of Pakistan, Asif Ali Zardari followed by his Prime Minister Syed Yousuf Raza Gilani.
“But Pakistan needs to manage its fiscal deficit because any unsustainable situation would starting impacting external account with certain time lag,” the IMF official warns. Economic reforms have the potential to enhance growth and create jobs in the government and non-government sectors. But to undertake the reforms, political will is necessary. Needless to say, the one commodity in short supply in Pakistan is political will not only to address economic ills but also much bigger threats to the well-being of the country. Amen!
