MALIK MUHAMMAD ASHRAF The International Monetary Fund (IMF) has withheld the fifth tranche of $3.5 billion from its loan package of $11.3 billion for Pakistan, and urged it to take the required fiscal belt-tightening measures to reduce the ever-increasing budget deficit. The move comes on the heels of Pakistans failure to bring in the General Sales Tax (GST) with a view to broadening the tax base and reducing in government expenditure - the promises made to IMF by Pakistan for obtaining the loan facility. It is estimated that the current budget deficit is hovering between 6-6.3 percent of the GDP and is likely to spike up to 8 percent by the end of the year if the present trend continues. That indeed is a very alarming situation and needs immediate action to arrest the impending nosedive of the economy. One thing that needs to be understood is that the economic quagmire into which Pakistan finds itself stuck at the moment is a cumulative effect of overspending by successive regimes and their failure to broaden the tax base to generate extra revenues that could help in reducing the budget deficit. While the successive regimes increased their consumption and development expenditure unimaginatively, with a growing propensity to initiate prestige projects lacking even remote relevance to economic growth, no reforms aimed at broadening the tax base were initiated, purely on political considerations. In a country of 180 million people only 2.7 million pay income tax and the ratio of tax to GDP is below 10 percent. The process of budget making invariably has lacked rational economic considerations. The strategy has been to fix the level of expenditure first and then find the means to finance it, through borrowing. The end result is that Pakistan has been caught into a debt-trap. The government has been forced to borrow more from home and abroad to meet the revenue deficit and finance its development expenditure, leading to further aggravation of the problem. Admittedly, the international recession, war on terror and the 2010 floods have also precipitated the situation. The country, therefore, badly needs to get out of this vicious circle and perhaps changing course is the only option to accomplish it. First of all, there has to be a change in the strategy of budget making that would require a radical departure from the past practice of determining the expenditure first and then trying to find resources. We will have to adopt a long-term policy of evaluating our revenues first and then determine the level of expenditure. That simply implies living within means and if we need extra financial resources for administrative and development expenditure that should preferably come through additional revenue generating avenues. The immediate steps required to rectify the situation and save us from the economic disaster that we are headed to, would be to broaden the tax base by finding other sources of revenue and reducing the government expenditure to curtail the budget deficit. This will not only help in arresting economic deterioration, but would also save our credibility as an international borrower. Today, the country is in an economic mess worked up by successive governments and no one has a magic wand to fix the ailment immediately. Surely, the problem needs to be fixed through collective effort. All the stakeholders have to adopt an honest approach and take the people into confidence about the actual state of affairs and honestly explain the sacrifices that everybody will have to make to put the economy back on the rails to ensure sustainable growth that ultimately will usher an era of economic prosperity. Better if politicians allow a panel of eminent economists to suggest short- and long-term solutions and strategies to our economic woes with all the political parties making a solemn commitment to follow them when the opportunity to rule the roost comes their way. The writer is a freelance columnist.