Desperate situation

The second round of talks between Pakistan and the International Monetary Fund (IMF) to secure a bail out package, what state minster for finance called on better terms and conditions, remained inclusive. However, the high officials of the finance ministry are optimistic that the issues on which the government and the global lender have differences will be resolved before the next meeting the Board of directors of IMF. Keeping in view the record of backtracking on reforms suggested by the management fund by previous governments, the donor agency has stressed this time the implementation of all structural reforms prior to the release of loan package.

Availing the IMF programme is essential to pave the way for economic assistance in the form of soft loans from other multilateral donors including the World Bank and Asian Development Bank Asian Infrastructure Development Bank. The tough conditions that IMF wants to be implemented on urgent basis include substantially raising electricity and power tariffs, privitisation of public sector enterprises and expanding the revenue by levying agriculture income tax and netting the non-filers and free float currency exchange rate. Gas and power tariffs have already been increased although the World Bank has now described it a counterproductive measure of additional revenue generation. The political expediencies had made the government unable to control massive electricity theft by powerful political and business elite and default of paying utility bills by them and bringing transmission losses to zero. The incumbent government has withdrawn 20 plus hemorrhaging state entities from the privitisation list including Pakistan steel Mill and Pakistan International Airline. The condition of currency depreciation has been met and rupee has lost 25 percent value against the US dollar. However, the government has not shown the spine to net the tax dodgers whereas the agriculture income enjoys exemption from the levy of income tax. It provides a safe conduit for tax evasion on other business like diary farming, poultry farming, and fisheries and even enables big landlords to club a substantial component of their income from industry and commercial enterprises with agriculture income.

The economic situation has not shown any improvement. Addressing a function at Islamabad the other day, federal Information Minster admitted the bitter truth that the government is unable to provide immediate relief to its voters who mandated it to power. It implies the government would be unable to fulfill its promises that were made to the people during election campaign last year. Blaming the previous governments for laying the debt trap, the minister said that out of National Income of Rs. 5,647 billion Rs. 2000 billion on debt servicing. But the incumbent government is pursuing the same debt policy that will certainly add to the burden of debt servicing. In the past six months fresh foreign loans worth $ 2.3 billion have been obtained. It does not include the loans committed by Saudi Arabia and United Arab Emirates. In addition to acquiring loans from friendly countries at the interest rate of 7 percent black money holders are also offered attractive rate of interest to park their money in offshore accounts and then bring it into country for buying Pakistan Banao Certificates. It remains to be seen how far this attempt of dollarization of economy and increasing foreign currency reserves succeeds. Previously all efforts of regularizing the black economy had failed.

The strategy of economic diplomacy is yet to take off. The existing incumbents working on the posts commercial attaches, councilors and trade minister are not making efforts to explore markets for exports from Pakistan. A trade minster of Malaysia, while addressing the Federation Pakistan Chamber of Commerce and Industry last month invited the exporter to enter the $ 2 billion red meat market. If our embassies and diplomatic missions pursue economic diplomacy, new markets can be explored for the exports of rice, wheat and fruits. A long term trade policy has to be formulated for increasing exports to the existing trading partners by negotiating favourable terms of trade and establishing trade relations with new trading partners. This will increase substantially the National Income and improve the balance of payment position.