After much dilly-dally, the government has finally clinched a bailout deal with the International Monetary Fund (IMF) hoping to achieve the much-needed economic stabilisation in three year’s period but only by sacrificing growth.
The $6 billion package, which is yet to be approved by the IMF board in Washington, is Pakistan’s 13th structural program with the Bretton Woods institution, since 1988.
The details of the terms and conditions of the package are yet to be made public but it does not need rocket science to discern what Pakistan would be required to do in return.
Pakistani stock and money markets have been acting in a jittery way for quite some time and the IMF deal should have ended or at least subsided volatility and uncertainty in the markets but their reaction showed that stability is still a far cry at least for now.
The stocks shed 800 points on the very next day of the deal confirmation by the IMF and de facto finance minister Abdul Hafiz Shaikh, while the rupee also witnessed a sharp fall against the US dollar. It was the worst performance of the stock market in nearly 15 years. The situation in the money market was equally bad.
The rupee lost five percent of its value in just two days in a demonstration of strong anxieties among the investors and businessmen. The dollar vanished from the open market amidst speculations that it would further shed its value.
According to the money market watchers, even before the approval of the deal, the government has already met one of the key demands of the IMF that it would keep no role for itself to decide rupee value and let market to determine it.
The stock and financial markets reaction was not unexpected as speculators and rumor-mongers get a field day to pocket maximum money in the absence of any effort by the government side to soothe concerns of the investors.
As the government was confirming the deal with the IMF, its representatives should have quickly reached out to the business community rather a meeting should have been pre-arranged to deny speculators and rumor-mongers to stir uncertainty and volatility.
The government needs to address the concerns faced by the business community and investors so that the financial and stock markets return to normalcy as continuing certainty may result in more losses and would also allow the speculators to exploit the situation in their favour.
Now that the free float rupee rate is a fait accompli, the million-dollar question is whether the government would be able to make any major headway towards achieving the other key IMF demands which are yet to be officially announced though they are obvious to anyone.
Pakistan needs to take some painful reforms to fix its ailing economy with or without any IMF deal but the main question is whether the present government would be able to perform what its predecessors have miserably failed to.
Unfortunately, successive Pakistani governments had conveniently avoided to carry out these badly needed reforms for fear of public backlash.
Historically, they have been making deals with the IMF with a commitment to bring in those reforms but these programs were mostly used to buy time to weather the storm.
Low tax-to GDP ratio has been a perennial problem of the Pakistani economy and is seen as one of the major reasons for the poor state of its economy whereby no serious effort were made to expand the tax base and effectively bring the rich and affluent class of society into the tax net.
Because of the geostrategic developments in the region, the ruling elite had found an easy way of getting money from the Western nations in the shape of generous economic assistance which allowed them not to take the risk of annoying the powerful wealthy segments of society by taxing them.
In the past, donors and Western friends had warned Pakistan they could no longer burden their own taxpayers to provide finances for Pakistan, while the country’s own ruling elite did not play its part in this regard.
But these warnings always fell on deaf ears.
The Pakistan Tehreek-e-Insaf (PTI) has come into power for the first time in the center on the slogan that it would bring a “tabdeeli” (a change) in the way of governing the country.
The party claimed it would do what the previous governments had failed to do and take the bull by the horns by taxing those who have been out of the tax net for long. But now when it has already been in power for over nine months, its performance, particularly with regard to handling of the economy, it has not been found any different from its predecessors so far.
In the current financial year, the country is expected to face a shortfall over Rs400 billion in the revenue collection.
The government has brought in a new chairman of the Federal Bureau of Revenue with a promise that he would introduce the long-awaited reforms in the taxation system to raise the revenues and check rampant corruption.
But unless some tangible steps are taken and some progress is shown on the ground in this regard, hoping against hopes would be unrealistic.
Now that the government has made the deal, it should try to build a political support for its move in the parliament without wasting any time. Unfortunately, the government seems to be in no mood to build a political consensus for the economic policies of the country and looks more interested to settle political scores through petty bickering.
Such behavior would deepen the already existing political polarisation in the country, which would deflect government’s attention from the more pressing issues facing the country.
Our rulers should keep in mind that the world economy in itself is going through a worst recession and unlike past no “free lunches” are available in the shape of bilateral aids and donations.
So it is time for our ruling elite to realise the criticality of the situation and rise to the occasion.
The writer is a senior journalist based in Islamabad