The mantra of ‘do more’ echoed in IMF post evaluation statement in response to the austerity measures taken so far in the short tenure. The austerity began by the PMLN government while the caretakers accelerated the pace and now PTI has to do what is supposed to be against the party manifesto.
It is a catch 22 situation. It is not easy being the finance minister of Pakistan at this point. The easier choice could have been to go directly into the Fund programme and let the tough measures come in shape of the IMF conditionality.
But some circles in the ruling party are against the decision of going into the IMF and in order to satisfy those, Asad is trying to reach every nook and corner to find external financing - from friendly countries to issuing Diaspora bonds.
However, it takes time to explore new avenues. The people are generally impatient and the opposition will not a single chance go by to criticize. This has ended up in a stalemate with uncertainty all around.
Time is running against the government. The tick tock of falling reserves is compelling Asad and team to take the decision one way or the other. In the week ending September 28, the SBP reserves fell by $600 million to stand at a mere $8.4 billion. This is covering only seven weeks of imports.
Two more weeks like this and game over. The fear of crisis can actually translate into a real crisis. The stock market is not taking this well either; to further erode the confidence of investors and businessmen alike.
Decisions have to be taken soon. The government should enter into an IMF programme to start with and continue taking austerity measures. Electricity tariffs have to be revised up; new taxes are to be introduced along with higher incidences on a few. The current expenditure has to be squeezed by reducing non-salary current expenditure by 10 percent (or Rs80bn). And tax concessions have to be phased off to lower the fiscal deficit.
Once done; markets may stabilize to regain confidence. At that time, the government should reach out for foreign investment. The attitude has to be changed; stop taking the bowl to friendly countries for cheap money. It is better to do road shows to attract investment of Middle Eastern and Far Eastern companies. The government must work on making the environment conducive and then bring the investment.
Imran Khan needs to go back his original plan of strengthening domestic economy and institutions. First appoint heads at big public sector entities, fill in the vacant positions in economic and governance institutions. Chart down and start implementing reforms at the FBR and BOI. Ease the process of investment and lower the compliance cost of taxation.
Once these are done; both the external financing (Diaspora bonds, Euro bonds, concessional lending etc) and investment (both domestic and foreign) will start pouring in. Stop thinking and start taking decisions. Now!
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