Notwithstanding the praises that we earned at the last FATF virtual round for showing progress in all the recommendations and implementing 21 out of 27 of them, the challenge that still remains and which needs to be tackled successfully in the next two months does look rather formidable.
Mostly, it is the strategic deficiencies that are needed to be overcome by: (1) demonstrating that law enforcement agencies are identifying and investigating the widest range of Terror Financing (TF) activity and that TF investigations and prosecutions target designated persons and entities, and those acting on behalf or at the direction of the designated persons or entities; (2) demonstrating that TF prosecutions result in effective, proportionate and dissuasive sanctions; (3) demonstrating effective implementation of targeted financial sanctions against all 1267 and 1373 designated terrorists and those acting for or on their behalf, preventing the raising and moving of funds including in relation to Non-Profit Organizations (NPOs), identifying and freezing assets (movable and immovable), and prohibiting access to funds and financial services; and (4) demonstrating enforcement against TFS violations, including in relation to NPOs, of administrative and criminal penalties and provincial and federal authorities cooperating on enforcement cases.
By February next year, the country is likely also to resume the three-year $6 billion Extended Fund Facility (EFF) programme of the International Monetary Fund (IMF) with all its restrictive austerity related conditionalities that are bound to end up causing stagflation, lower health coverage, increase neonatal mortality and accentuate inequalities.
Early last month, the IMF did go as far as calling for a massive boost to public investment in rich countries. However, in contrast, its support for developing countries fell tragically short.
In a new study one finds that the IMF has made relatively trivial amounts of new financing available and have been slow to disburse the financing at their disposal - the IMF has financed over 100 programmes at upwards of $ 88 billion.
Indeed, at a recent event, IMF First Managing Director and former Trump Administration official Geoffrey Okamoto said developing nations should 'keep those receipts' (of pandemic related help extended in recent past) hinting that a return to austerity is coming.
So, in the immediate term, Pakistan will need to reckon with the short-term effects of structural adjustment under the new program: massive devaluation of the rupee and rising inflation from the rise in the costs of imports. This will reduce both effective demand and output, which will be further reduced as the government reduces developmental spending amidst fiscal austerity.
Attempts to control inflation by increasing the interest rate (as the government has recently done), will lead to further contractionary pressures, further reducing economic output and fiscal revenue, continuing the vicious cycle.
To address this crisis, Pakistan will have to re-undertake intervention in the currency markets and not allow the IMF imposed principle of a free floating currency to continue to subject the working population to unending amounts of back breaking inflation and the prospects of speculative short selling and predatory assaults on a free floating Rupee.
Such actions are likely to cause the Fund to withhold the disbursement of the next tranche and perhaps virtually abort the programme itself.
The economic cost of abandoning the IMF programme at this juncture would certainly be enormous. But on the other hand, the socio-economic plus the political cost of continuing with the programme looks even more devastating. In fact, by continuing with the programme the country is more likely to plunge into an extended phase of slow growth or perhaps no growth at all. This would most probably lead to what are known as IMF stirred riots on the streets posing an existential threat to the country itself.
As it is, the global backdrop to the emerging situation in the country also does not look all that encouraging. The COVID-19 pandemic continues to devastate countries, overwhelming health systems, disrupting productivity, threatening food security, multiplying job losses, and reducing incomes, particularly for the poorest. It has led to the largest global economic contraction in eight decades, affecting all economies and causing investments, trade, and remittance flows to plummet. The global crisis is threatening the lives and livelihoods of the most vulnerable by increasing poverty, exacerbating inequalities, and damaging long-term economic growth prospects.
To support the population in this difficult time, the upcoming budget must include both new direct taxes on wealth, assets and higher incomes, as well as measures for subsidizing essential food commodities.
But even before the presentation of the next year's budget we need to change the very orientation of our economy from export-led to one led by import substitution. Along with this we need to take in hand in public sector construction of roads, bridges, small and medium size dams, cold storages for perishables and fruits and huge silos to store food grains to be financed by printing currency without bothering about the fears of inflation. The massive injection of unearned money in the economy would create tens of thousands of jobs mostly among the teeming millions living below and just above the poverty line as well as for engineers of all kinds plus the management graduates. Spending surpluses in their hands would fuel demand thus causing the wheels of industry to turn at a faster pace and with supply reconciling with demand inflationary currents would largely get subdued.
To encourage import substitution, imports of raw materials and intermediaries could be put on duty free lists while the finished and semi- finished goods listed among those carrying very high rates. This would certainly encourage foreign exporters to bring their raw materials and intermediaries and technology to Pakistan to set up industries for the 200 million plus market to fabricate goods they have so far been exporting to Pakistan.
Here we need to keep in mind that the artificial intelligence, the new technologies being thrown up by the fourth industrial revolution, the on- going digitization and on-line connectivity have joined up boosting the value chains while the supply chains are being shortened fast.
Meanwhile, we need to immediately take the following measures to resolve the resulting disruption that would occur in the supply and demand situation:
Ensure all economic, political and foreign policy decision making is predicated primarily on the basis of their respective contribution to sustainable and equitable economic development in keeping with the socioeconomic needs of the majority of citizens.
Generate agricultural surpluses through wide ranging land reforms to create widespread land ownership, enabling more efficient and equitable farming and strengthened extension services, marketing and infrastructure.
Tighten regulations covering finances to enable financial inclusion and savings and ensure lending for productive enterprise in manufacturing.
Introduce a system of progressive taxation that targets the tax avoidance and evasion of the elite, particularly in real estate, large agribusiness, and banking and finance, among others.
Conduct an audit of all tax exemptions, waivers and holidays granted through SROs to understand where revenue losses are occurring and eliminate them as necessary, while giving authority for future SROs to parliament.
Levy a land value tax on the basis of market value of unbuilt urban land, to generate revenue, limit speculation, undermine individual land accumulation, encourage construction and incentivize productive land use.
Create a documented urban land registry to ensure elimination of speculation and tax avoidance by landowners.
Dis-incentivize the phenomenon of absentee landlordism and undertake public investment in processing, storage, transport and marketing particularly for key agricultural industries with high growth potential like milk and dairy, rice, cotton, wheat and edible oils.
Increase spending on education to 5% of GDP and health to 4% of GDP and restructure education and health systems to make them functional and accountable, with affirmative action for students from poorer and under-developed regions.
Overhaul education curricula according to the needs of the information age and fourth industrial revolution to create a productive workforce with 21st century skills.
Recognize the right to organize and form unions in all sectors of the economy, including in the informal sector.
Reduce reliance on thermal energy through increased public and private investment in generation through renewable sources like hydropower, wind and solar.
Copyright Business Recorder, 2020
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