Pakistan’s addiction to borrowed money

Father of the Nation Quaid-e-Azam Mohammad Ali Jinnah in his speech at Ziarat, Balochistan, in 1948 stated that: “We Musalmans in general and young men in particular, do not know the value of money. A paisa saved today is two paisa tomorrow, four paisa after that and so on and so forth. Because of our addiction to living beyond means and borrowing money we lost our sovereignty in this sub-continent.” A good 75 years later the fiscal sovereignty of Pakistan remains forfeited with the lenders.

Prime Minister Shehbaz Sharif in his inaugural speech early this week lamented that the entire federal government expenditure is met through borrowing. He said only little is left in the federal government’s kitty after the transfer of funds to the provinces.

Pakistan averted a default last summer because of a short-term IMF (International Monetary Fund) bailout. With 60 percent of state revenue exhausted in loan payoffs and only 40 percent left out to fund the needs of the nation, the IMF is once again looked upon as the saviour, and rather desperately.

The 23rd IMF bailout programme will end next year and Pakistan is all set to yet again knock at the door of the IMF for a new bailout programme of an extended IMF facility of $ 6 billion. This would be the 24th IMF programme the nation would be entering into in its short history of 76 years - meaning an IMF programme every three years and that Pakistan’s fiscal sustainability remaining perpetually subservient to IMF. Perhaps no country has been so addicted to the IMF lending as Pakistan is.

India had sought financial assistance from the IMF seven times but never since 1993. The repayments against the loans taken from the IMF were completed by May 2000 and thereafter India never went to the IMF, thereby restoring its sovereignty over its economy in an effective and meaningful manner.

It also helped India pursue its global political/ economic objectives and forge alliances based on its national interests. A war-ravaged Vietnam borrowed from the IMF in 1993 and additional loans in 1994 to alleviate poverty and its economy and successfully repaid all loans by 2012 and never looked back at IMF on the strength of building its own financial resources and robust economy.

Recognising the urgency, PM Shehbaz Sharif has indicated that he will personally monitor the talks with the Fund. In the same breath, he underlined his commitment to undertake hard decisions - the decisions which matter a lot.

The rhetoric of hard decisions is often heard about but never publicly made transparent as to what these hard decisions exactly are and what they actually mean to a society so distinctly divided into elite minority and the deprived majority with different set of standards for both.

So far the hard decisions, under the IMF dictate, have been the withdrawal of subsidies, thereby hitting the industry and the deprived class in terms of inflation, layoffs due to businesses and industry closure on account of high cost of doing business, perpetual utility and fuel price hikes.

Insofar as the real hard decisions, which truly matter, are concerned, they have been left out on account of political expediency, vested interests and incompetence to manage reforms in the economic and fiscal disciplines of the country.

The glaring examples of the wastage of public funds left unattended are the loss-making public sector enterprises, circular debt in the energy sector on account of incompetence and misgovernance, reckless government expenditure in terms of self-awarded privileges by legislatures and public office holders, unnecessary and reckless expenditure on 33 federal ministries - some of which are superfluous while some redundant on account of transfer of responsibilities to provinces under the 18th amendment.

Then there are sensitive issues like the public money waste on account of National Finance Commission (NFC) Award.

The concept behind the NFC Award was that the funds related to social sector like education, healthcare, civic facilities and other areas in the general public interest would be awarded out of the federal pool to the provinces for their better utilisation in public interest. The disbursement of funds in public interest lacks transparency and has not served its purpose. There is a dire need to revisit the Award and plug the waste.

The prime minister has hinted at revisiting the NFC Award in order to deal with the growing challenge of burgeoning debt burden. But for any review of the NFC Award, there is a need for consensus among all the provinces.

That seems improbable in the present situation with the provinces being ruled by different political parties, especially with KP under the PTI’s (Pakistan Tehreek-e-Insaf’s) control. Any change in the existing arrangement would need political reconciliation, which doesn’t seem to be happening in the current atmosphere.

Also, the rhetoric for the need of structural reforms is resounding. Here too the public is at a loss to comprehend what exactly are the structural reforms the government is aiming at. Bifurcation of FBR (Federal Board of Revenue) could well be one structural reform. Clarity from the government on structural reforms is desirable.

The real issue, though, is whether the government, with multiple coalition partners having diverging interests, beyond doing a patch-up job, would be in position to take tough decisions, and initiate some fundamental structural reforms. Furthermore, political stability in the country is a must for the economic and fiscal stability of the country. The challenge ahead is daunting, demanding best of statesmanship.

Copyright Business Recorder, 2024