These days there is much talk about the perils of Pakistan's economy, and lot of blame-game and mudslinging both economic and political is rampant. In this whole scenario the people of Pakistan are totally confused on two counts. a. What is in store for them in the present circumstances?, and b. What should they look forward to in future?
These are the questions which are worrying all segments of Pakistani nation, and despite more than 8 months in office our government has not been able to answer these burning questions. There is no doubt that the present democratic or for that matter any government has a magic wand to change this perilous situation overnight and that too in such a short period. Governments always devise and pronounce measures which give direction and hope to the nation for future.
Like all previous Governments the present one also laments inheriting a derailed economy despite the previous Government's claim of economic revival, the growth and the foreign exchange reserves swelling to around 17 billion Dollars in February 2008. Let us be the advocate of the present government and analyse the situation in this perspective.
The government, instead of spelling out the issues for the people of Pakistan to win their support, resorted to autocratic and dictatorial method of unilateral increase in the prices of fuel, gas, electricity etc. This has resulted in rapid spin of the vicious circle of uncontrollable price escalation of all consumer items engulfing the whole nation.
HOWEVER, THE FOLLOWING ARE THE POINTS OF CONCERN FOR PAKISTAN AT THE MOMENT;
1. Rapidly dwindling foreign exchange reserves.
2. Wide gap in balance of payments.
3. Rapidly falling Pakistan rupee parity.
4. Debt repayments.
5. Finances required for import of petroleum products.
6. Funds needed for development projects.
7. Financial requirements for defence purposes.
Before we proceed we should first of all analyse the evil and dangerous repercussions of the $9.6 billion IMF loan and its catastrophic conditionalities as spelled out in some of the print media recently.
a) Slashing of defence budget by 30% in the next four years, thus depriving Pakistan for maintaining minimum deterrence.
b) Mark-up rate of the loan will be around 17%, making it most unaffordable.
c) This loan will not be rescheduled.
d) Job cuts in government and semi government organisations by almost 50%.
e) Substantial increase in General Sales Tax (GST) to raise additional revenue of 50 billion rupees.
f) Imposition of 7% tax on wheat (in fact tax on atta) thereby further depress the nation already under heavy burden of high inflation.
g) 3.5% tax on other agriculture produce like rice, maize, cotton, vegetables, fruits and many others.
h) Pakistan will be shackled by the terms of this loan so as to be subservient to IMF for submitting quarterly reports of its implementing the stipulations of IMF loan, with an IMF "Boss" (representative) monitoring the affairs of Federal Board of Revenue.
i) IMF will have the power to impose and implement any further condition as and when it feels necessary.
j) Next year's budget will be prepared under the direct supervision of the Special IMF Board comprising 6 IMF and 2 World Bank Directors, who may even propose and impose the federal budget, which will have to be complied with by the Pakistan Government.
k) Pakistan will disclose all loans taken by it so far with specific reference to loans from China before signing this Loan document.
l) Pakistan will pledge 25% of all its assets with the IMF as securities against the loan.
m) IMF will have full control on Pakistan's foreign exchange reserves, commercial banks and other financial institutions.
The above conditions clearly reveal the hidden agenda of IMF and World Bank to fully subjugate and "humiliate and eventually undermine the economic sovereignty of Pakistan".
The big question at the moment is what to do in such a precarious situation and whether we can survive without this "Loan transfusion or not?" as the main fear is of a default in previous debts servicing, while various other countries eg Indonesia, Russia and Argentina etc had defaulted and they are still surviving.
In fact this is the most important point to assess and discuss in the parliament and reveal to the nation, our present, immediate and distant future commitments and financial requirements and predicaments. This will not only help the Government in getting better terms if the loan is so desperately needed but also get full support of the people who voted for the democratic Government.
Hypothetically speaking let us discuss the consequences and repercussions of not accepting these slave conditions of IMF. They will most probably refuse the loan. So then what is the other recourse?
Before a remedy or strategy to overcome the crisis is considered an honest and brief appraisal of the present situation is imperative. For a country like ours where trade and current account deficits are very high and heavy debt repayments are encompassing the resources, the foreign exchange reserves are considered to be the backbone of the economic stability and strength.
Unfortunately, under the present Government these reserves have been depleting fast. This situation has resulted in ultimate lowering of Pakistan's credit rating. There are various reasons for this depletion, but the main cause is the unplanned and unnecessary import of luxury and non-essential items, and above all because of business uncertainty and unprecedented flight of capital etc.
Admittedly, the international hike in the price of petroleum products has rapidly increased our trade deficit, yet the planners should have foreseen and suggested appropriate measures to control the heavy outflow of valuable foreign exchange on non essential items and the huge sums of foreign exchange.
According to the data released by the Federal Bureau of Statistics, Pakistan annually spends foreign exchange close to 11 billion US dollars on petroleum products, around 15 billion US$ on machinery, raw materials and food imports, and billions of dollars on unnecessary import of luxury items like fuel guzzling cars, mobile phones and many other luxury items besides now the addition of another necessity of life "Alternative domestic electricity generating machines" ie power generators, the UPSs (uninterrupted power supply units) and the components thereof because of heavy loadshedding of electricity.
Imagine a country having meager foreign exchange reserves making such wasteful expenditure on these luxury items while borrowing money to fulfil its commitments. Under the WTO regime it may not be possible to ban these imports but there is no constraint on imposing heavy duties on such items thereby discouraging their imports and consequently saving lot of valuable foreign exchange.
All said and done the present situation by all standards is precarious needing immediate radical and great policy shift to get out of this serious threat to our economic security.
The newly inducted financial consultant is yet another banker who is a very experienced banker but having no practical exposure of managing a country's economy and would not be able to think beyond a banker's approach and is therefore singing the tune composed by the loaning agencies like IMF and World Bank, whose loans have already strangled us in debt servicing whirlpool.
One is totally dismayed at his recent outburst about bitter pills for our nation to swallow in the shape of taxing already depressed and heavily taxed agriculture sector and increase in taxation on those sectors which can help in economic turnaround. Well, he is also recommending the same old recipe which one has been hearing since 1947 except for a short time during the Ayub regime which despite all ills and shortcomings had given Pakistan "Green Revolution", and an industrial model emulated by many developing countries, including Korea.
For a son of the soil like him, one would have expected an independent approach devoid of further borrowing with a personal example to live up to the expectations of the government and the nation by coming out with solutions from within for upholding our national pride and economic sovereignty.
A FEW PROPOSALS COULD BE CONSIDERED BEFORE SUCCUMBING TO THE ABOVE PROPOSED DEPRESSANT AND KILLER MEASURES:
1. An increase in all categories of withholding taxes by 2%, exempting senior citizens and widows.
2. Additional tax on high value cigarettes.
3. In agriculture sector farmers having land above 50 acres barani, and above 25 acres irrigated may be taxed at annual flat rate of 25,000 rupees and 40,000 rupees as agriculture tax, (if at all agriculture has to be taxed further, which is though a provincial subject).
4. Luxury cars ie by ITP value categorising by brand name, increase in duty proposed as under.
a. An Imported Japanese car of above 1700cc up to 2500cc be taxed @200% additional duty on existing ITP and tax rate.
b. An imported European car of 1700cc and above up to 2500cc, 200% additional duty on existing ITP and tax rate.
c. Any imported Japanese or European car above the above-mentioned capacity, 300% additional duty on existing ITP and tax rate.
d. Impose 10% duty on locally manufactured cars above 1300cc petrol cars.
-- All new plazas for commercial areas Rs 20 per sq. ft., and for residential Rs 10 per sq. ft. tax be clamped on sales (whether cash or on instalments).
-- GST be increased by 1% from existing rate on items already under this regime.
-- Reduce Government spending by 20% in every sector and cap the fuel usage by government officials/ministries 20% down from existing usage (both in fuel volume and value).
-- Our PM, CMs should change to commercial air travel from independent plane usages and forthwith stop large delegate groups for foreign tours. Moreover, for attending social functions they should bear the expenses personally.
-- Defer non-productive development projects, and instead concentrate on the completion of existing incomplete projects.
-- Impose 10% additional duty on imported toiletries and make up material.
Being an experienced banker, and having complete access to revenue receipts, there is no doubt he will be in a position to know the impact which the above measures will have in raising substantial funds for our national requirements. Moreover, these will have minimum adverse repercussions on the economic plight of the common people.
Now let us explore the possibilities of building and replenishing foreign exchange reserves. In fact it can be also done very easily if our rulers, leaders, many government and corporate chiefs, businessmen, bankers and our financial experts create a personal example by bringing some part of their foreign exchange funds lying in banks abroad, which will positively lure and motivate our Pakistani brethren abroad to remit large sums.
Time and again our nation has proved with their positive response and one is sure they will not fail their beloved motherland in this serious situation. But personal example is foremost condition for credibility and motivation.
HOWEVER, IF THIS IS "NOT PRACTICABLE" THEN THE FOLLOWING TWO IMMEDIATE STEPS CAN HELP A GREAT DEAL:
A. Our Prime Minister should make an appeal to the people working abroad and many others having businesses and bank accounts abroad to at least remit a minimum of US $5,000 each in the next three months. This will substantially contribute in overcoming the present crisis related to international commitments.
B. Secondly, instead of going for new Loan from IMF we should try to reschedule our due payments and get them deferred for a year or so.
C. Concentrate on "Friends of Pakistan" assistance/grant and one feels they will certainly come forward if the above steps are taken. To sum up where there is a will there is a way, and this is perhaps the only positive way which is neither too demanding, nor impossible.