Dr Qaisar Rashid
Whereas Pakistan’s Foreign Minister, Bilawal Bhutto Zardari, is frustrated over the dilly-dallying of the International Monetary Fund (IMF) in concluding the staff-level agreement on releasing the last tranche of $1.2 billion loan, March establishes itself as the decisive month for Pakistan’s economic future.
Pakistan has yet to complete the ninth review of the IMF’s Extended Fund Facility Program totalling a $6.5 billion bailout package which was signed in 2019. The staff-level agreement would help Pakistan secure finances from other bilateral and multilateral partners to reach the end of June (the fiscal year 2022-23) without defaulting on its external debt servicing obligations. Unfortunately, the IMF is in no mood to issue the last tranche before April.
As estimated by Moody’s Investors Service on February 28, by the end of June 2023, Pakistan’s external financing needs are around $11 billion including the outstanding $7 billion external debt payments. The average debt servicing is around $2 billion a month. However, of the unpaid external debt, Pakistan has planned to service $3 billion by the end of June while $4 billion may be rolled over with the help of Chinese creditors.
Pakistan has so far taken two major steps: first, it has announced adopting austerity measures to shave one-third of its non-developmental expenditures; and second, it has passed a mini-budget from the assembly to collect revenue immediately.
Unfortunately, the Pakistanis are not inured to taking austerity measures. The bureaucrats, the judges and the military officers compete with one another to secure benefits from the national exchequer. There are in competition to live a luxurious life, both during service and after retirement. The same is true for legislatures and constitutional offices (president, governors). This is where the government’s drive to rely on austerity measures goes awry. That is, a common man should pay high taxes (which are mostly indirect taxes), whereas the privileged revel in luxury. The imbalance is where a revolt lies. Without reducing salaries, pensions and perks of these high offices, neither austerity measures nor mini-budgets can work.
Shabbar Zaidi, the former Chairman of the Federal Board of Revenue, is right in saying that real estate is the parking lot of untaxed money. On March 12, at Al-Hamra Art Center Lahore, on the occasion of the EconFest, Zaidi said, “The real estate has got perpetual amnesty in the country.”
The crisis is more than Zaidi pointed out. Expatriate Pakistanis send their hard-earned money as remittances which are used for two main purposes: first, to buy land and property; and second, to import foreign goods. Agriculturalists have been selling their cultivable land to house constructors, who have been turning arable land into luxury gated housing societies and golf courses. Similarly, industrialists have been selling their industries to either import items to sell in the local market or buy real estate to sell it afterwards to earn quick profits. Resultantly, the local industry has been vanishing fast. This is one of the reasons Pakistan’s export has fallen and import has arisen, causing the trade deficit. The real estate sector has become the bane of the country. Without taxing this sector heavily, Pakistan cannot deal with the trade deficit crisis.
Whereas India spends around 2.8 per cent of its GDP, Pakistan spends 3.8 per cent of its GDP on defence. One of the successes of India lies in excelling in the sector of information technology (IT). In the mid-1980s, India emphasized the IT sector, and, in the mid-1990s, India invited investment to enhance the expanse of its skilled labour in the IT sector. This was the time when one martial law ended and another braced for ruling over the country. In the financial year 2021-22, the share of the IT sector in India’s GDP was around 7.4 per cent. The domestic revenue of the IT industry is around $49 billion and export revenue is around $181 billion.
What Pakistanis have made use of its available IT sector is to tap telephone calls, bug bedrooms, wiretap bathrooms, promote dancing girls (to hype national songs) and hound journalists and writers (to suppress the voice of reason). WhatsApp technology has empowered the judges to establish clandestine links with the sleuths who ensure elevations to higher posts. Politics is now power politics of which the judges are a compulsory part. Certainly, it takes a lot of effort to bring a country on the edge of default. Whether or not to run the country is the headache of those who have to afford more than 40 per cent inflation as a cost of surviving in this country.
In the recent past, Pakistan’s proxy status to serve the western purpose in the region remained a vital factor for making both the military and the judiciary supplied with funds to make them independent of the concerns and woes of the common people. This may not be the case anymore. Pakistan’s debt distress is bound to continue with $2 billion per month for servicing. The next budget for the fiscal year 2023-24 would be important to set priorities for earning and spending. Whereas China is Pakistan’s single largest creditor, Pakistan cannot avoid the next program of the IMF.
Pakistan’s heavy debt brings misery and ignominy to its citizens. Pakistan has to restructure its economy by reducing non-developmental expenditures including the defence budget which should go below 2.5 per cent in the coming fiscal year. Pakistan has to spend more on education, health and infrastructure. This spending may not yield fruit immediately but it would pay dividends in the long run. Besides, Pakistan has to devise a plan to rein in its burgeoning population.
Pakistan has to understand that the government sector including the military can no more be an indiscriminate employment source. The private sector has to be incentivized to flourish and participate in the national economy and development.
The writer can be reached at qaisarrashid @yahoo.com.