Mohammad Jamil
Reportedly, Ministry of Finance is considering hiring of 3 foreign experts to improve the working of the ministry and also for increasing the revenue because the government is poised to declare ambitious plans in the budget to be announced today. But it is fraught with dangers, as foreigners will have access to all the data including sensitive data and allocation for defence. In other words, it could be a security risk. In January 2015, the government had informed the International Monetary Fund (IMF) team that the Debt Office would be strengthened by hiring experts with MP scales after getting approval of Prime Minister Nawaz Sharif. In the aftermath of enactment of Fiscal Responsibility and Debt Limitation Act (FRDLA) 2005 approved by the Parliament, no rules of business were devised to run the office of Debt Policy Coordination Office (DPCO) under the aegis of the Ministry of Finance.
Later, the rules of business were prepared in consultation with the Ministry of Finance and Establishment Division. Under structural benchmark criteria, Pakistani side issued an order on consolidating debt management functions but it fell short of what had been envisaged under the IMF program. The government had appointed a director to the DPCO.
Through strengthening of DPCO, the government started providing IMF staff with a detailed quarterly financing plan for the coming 12 months. The government recruited a DG to lead the DPCO and build capacity by hiring and/or training additional staff with the help of international partners; and will take steps to strengthen front office management of debt issuance both in domestic and external markets by arranging a formal linkage with the DPCO and executing and communicating the borrowing auctions with the SBP being the agent, and strengthening the primary dealership system.
In the Bloomberg report, calculations of Pakistan’s total foreign debt ($120bn) and total budget for 2015-16 ($13tr) are incorrect due to which their assertions are questionable. Despite improvement in the country’s security situation and the economy growing at an eight-year high, Pakistan risks default as 42 percent of its foreign debt, around $50 billion, is due in 2016, reports Bloomberg. Around $30 billion is due between July and September, of which $8.3 billion will need to be in foreign currency, depleting 40pc of the nation’s $21 billion in foreign-exchange holdings.
But a major part of the debt due is in local currency, which leaves the government with room to introduce more short-term instruments to leverage its current liabilities. Pakistan’s high level of public debt, with a large portion financed through short-term instruments, does make the sovereign’s ability to meet their financing needs more sensitive to market conditions.
In 2013, a $6.6 billion loan from the International Monetary Fund (IMF) was used to make payments for previous outstanding loans and avoid a Greece-like crisis. Since then, the projected debt due by end-2016 has grown by 79pc. At Rs.13 trillion ($124 billion), 77 pc of the budget is already allocated for loan repayments this year. A concurrent challenge is meeting IMF demands to privatise state-owned concerns, as witnessed by the strike at Pakistan International Airlines, which ended in February. Our policy makers are focused on reducing deficit and privatization of prime assets as dictated by the IMF. By doing so they have pushed the country virtually in IMF’s trap.
Transferring ownership of our national assets may result in growing poverty; increase in unemployment because of retrenchment by the new owners, and eroded exchange rates as foreign investors would transfer profits overseas.
Federal Finance Minister Ishaq Dar has been boasting about foreign investors’ confidence in the government, and claims to have commitment of $32 billion Chinese investment, which is in fact a loan. IMF touts that it helps recover the economies that are in dire straits, but in fact it has the record of multiplying the problems of debtor countries.
Its conditions of withdrawing subsidies, devaluation of currency and privatization of prime national assets adversely impact the people and the state. Pakistan is already in the grip of foreign debt to the extent of $70 billion, and despite the rescheduling of the debt or taking new loans to pay back the old loans, one day these loans have to be paid. If this trend continues, Pakistan would find itself in the vicious circle; and would continue to take more loans to pay back the old loans.
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. If axe falls on development expenditure, Pakistan would not be able to build infrastructure for further development and industrialization to generate employment opportunities.
On their part, the trade and industry should resort to aggressive and innovative marketing policies; look for non-traditional markets; and try to increase the exports of value-added products to reduce the trade deficit. Unfortunately, the IMF does not give suggestions or advices that really matter. For example, there seems to be no pressure to immediately bring agriculture sector into the tax loop perhaps because majority of the parliamentarians belong to landed aristocracy.
Some industrialists have also gone into agricultural sector to take advantage of exemption on agricultural income, and use it to convert black money into white money. It means that the IMF would not like to annoy the ruling elite.
It has to be mentioned that agriculture contributes about 23 per cent to the GDP, but does not contribute to the exchequer in the form of taxes even to the extent of 5 per cent. As regards trade deficit i.e. excess of imports over exports, our industrialists and exporters are handicapped because of higher input costs like electricity and gas charges. It is better for the government to rely on homegrown policies instead of following IMF policies. PML-N government has been claiming that it has competent, experienced and honest managers they why it does not put them as heads of the public sector enterprises to turn into profitable entities. In many countries, the utilities are being run successfully by the state; why it cannot be done in Pakistan.
