The visiting side wasted no time in making it clear that Islamabad must take ‘strict action’ to keep fiscal slippages in check in order to keep its budget deficit within the envisaged limits and return a modest primary surplus as laid out in its official budget document for the current fiscal year, as Pakistani officials sat for technical-level talks with the IMF review mission in Islamabad on Tuesday. In other words, the coalition government is being asked to pass a mini-budget as soon as possible.
To make way for the mission, the government has already agreed to two of the four issues with the IMF: free floating the rupee and collecting the full petroleum development levy (PDL) on gasoline pumps. The remaining points of contention are an increase in gas and electricity prices, as well as the imposition of new taxes to fund any unfunded subsidies or unforeseen expenditures.
All the government has to do now is remember that the Pakistani citizen is not in a position to bear any additional burden. This inevitably leads to the conclusion that now is the time for the elites to step up and shoulder the additional burden. There is no reason why the PDM’s business and trading friends should not be valuable allies in the government’s search for new revenue streams if approached properly.
A few months ago, there was talk of levying a windfall tax on banks that made money in the troubled foreign currency market last year and continued to make money on Dar’s watch until he agreed to free-float the rupee a few days ago. What happened to that? Then there’s the option of reducing government spending. There are certainly other options available to the government.
Finally, there is no denying that politics is to blame for much of the mess in which our economy is currently mired. Every decision made by international financial institutions and financiers takes political and policy risk into account. This became abundantly clear during the meeting when the IMF mission raised the issue of political ownership of the deal.
Finance Minister Ishaq Dar, who led the Pakistani side in the talks, correctly stated his government’s total commitment to the parliamentary process and parliamentary ownership. Passing the proposed mini-budget through a presidential edict should thus be viewed as a constitutional device to expedite the proceedings while the more deliberate parliamentary process is underway.
Pakistan requires political normalcy in order to return to work, and there is much to be done aside from balancing the budget and beyond the current fiscal year. There is the massive task of reconstruction in the aftermath of last monsoon’s cataclysmic floods.
There is an economy that needs stabilization. There are difficulties in ensuring universal health and education. For the time being, however, everything is dependent on the success of review talks taking place in Islamabad with the IMF field mission to get the Extended Fund Facility (EFF) programme back on track, which is dependent on the government’s willingness to find new revenue streams. Then it’s on to the mini-budget, because that’s where Pakistan’s future lies right now.
