Looking up to 'Ikonomics'
Pakistan’s bid to save its $313.13 billion economy rests optimistically on their ‘Ikonomics’ of freezing defence budget and roll-back of development programmes
Pakistan's Prime Minister Imran Khan Niazi leans heavily on economics in the short run to get rid of or defer indefinitely the bailout package of the International Monetary Fund, at least up to January 15. Coined as 'Iknomics', the ruling Pakistan Tehreek-e-Insaf government lays stress on four directions to save the $313.13 billion economy: beefing up exports with termination of exchange rate control (by default or by design), improving remittances that in the short-run can yield $10 billion (50 per cent increase from the current level), enhanced investment and drastic reduction in money laundering, which is estimated at anywhere between $10 billion and $15 billion a year, thriving on from corruption, tax theft and other criminalities. Khan is in an experimental mood to avoid the IMF, whose conditionalities are generally crippling. He banks on Saudi Arabia, the UAE and China to 'mitigate the tidal wave of a potential dollar-denominated payments crisis', inherited by the PTI government. Success in ridding of the Breton Woods twin will help Islamabad reap a diplomatic advantage out of a free-to-formulate fiscal management and culture.
Friday Times editor Najam Sethi in his habitually critical way cautioned the PM about relying on China and Saudi Arabia. "It was naïve to think that the deep crisis of the exchequer could be overcome simply by noble support from China and Saudi Arabia or the philanthropic sentiments of overseas Pakistanis. The Chinese are good at injecting the risk factor into all their contracts with unstable countries like Pakistan and to that extent may ease up on debt payments and encourage imports from Pakistan as a strategic necessity. But they will not fork over hard cash upfront to relieve our forex burdens. They will also refuse to allow the Government of Pakistan to disclose their contracts to the IMF, which is perceived as a Trojan horse of the Americans. Much the same may be said of the institutional approach of Saudi Arabia. Every Pakistani government has gone begging to Riyadh and all have obtained the facility of deferred oil payments. But there will be a political price for cash deposits. Khan's visit to the UAE suggests that the price will be in terms of joining the US-Israel sponsored Middle-East security bloc led by Saudi Arabia comprising Egypt, UAE, Jordan, etc., against Turkey, Syria and Iran. This may have adverse consequences for the state and society in Pakistan.
Bluntly stated, 'IKonomics' is fraught with uncertainties as plugging the fiscal and balance of payments deficits imposes acute hardship all around. The very first step is freezing of defence budget and roll-back of development and poverty alleviation programmes. Pakistan's Federal Board of Revenue has to tap new taxpayers – a practice never sincerely pursued. The finance ministry will resort to quick bureaucratic fixes by raising both direct and indirect tax rates and devaluing the rupee. But for such feats of incompetence, previous regimes could reduce the over-reliance on IMF.
Pakistan had recast the fiscal structure through IMF for the last time when the Pakistan Muslim League (Nawaz) government entered into the 21st loan facility of $6.2 billion in 2013 (paid back $7.54 billion to the Fund to discharge the liability of the standby agreement, emergency natural disaster assistance and extended credit facility agreed by previous governments) across 18 separate programmes, but total debt from different countries and international institutions in three and a half years (June 2013 to October 2016) rose to $28.03 billion.
However, an illusion about China persists among a section of economic analysts in Pakistan in contrast to Sethi. Mosharraf Zaidi makes no bones of his abiding faith in China which to him is "the financier of choice for Pakistan. Many critics of the China-Pakistan Economic Corridor simply do not know what they are talking about. This includes senior advisers in the current government. Their belief that they have legitimate questions about the terms of Chinese financing for Pakistani power and infrastructure projects is irrational. A debate about the terms of Chinese financing assumes that Pakistan was shopping for cheap project financing in a perfectly competitive market in which money was tripping over itself trying to get into Pakistan and turn profitable tricks for investors and lenders"
In fiscal 2017-2018, Pakistan incurred total expenditures of Rs 7.49 trillion while the aggregate revenue was of Rs 5.23 trillion, which was not enough. More important is the quality of revenue. Tax revenue accounts for 85 per cent of total revenue while property tax comprised barely 0.13 per cent - a proof of cobra-hold of military-feudal power. Khan is committed to supporting this power that constantly suppresses even democratic evolution within the parliamentary democracy.
But can Khan march ahead with pious promises? The promise of Naya Pakistan is on paper only. With the passage of 100 days, the future of the democratic project looks uncertain. The troubled state continues to be politically and economically unstable. The IMF breathes heavily down the neck. The lender has kept Pakistan sandwiched between a rock and a hard place. "If Pakistan gets a bailout package from the IMF, we will actually buy more inflation, unemployment and stunted growth. If we don't get the package, then our borrowing and begging position will be reduced further with fears of default hitting us hard", Murtaza Solangi stated realistically.
(The views expressed are strictly personal)
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