Continued…

 

The West led by International Financial Institutions (IFIs) is close to achieving in Pakistan, what military cooperation, coercion, violent non-state actors and 13 years sanctions could not. In the past, Pakistan wriggled out of successive crunches through friends and own efforts. With the latest IMF package, there is a paradigm shift. For the first time, Pakistan has outsourced its fiscal policies to individuals picked from IFIs. IMF will have free ingress into all economic matters that includes borrowing, debt, currency, taxation and sectorial spending. Yet there are many areas where Pakistan can still perform.

Pakistan’s budgeted economy is a mid-air suspended phenomenon with no foundations; neither here nor there. It negates Pakistan’s elements of national power. It is an exclusive domain of few elites who reap benefits and employees of IFIs and international banking systems that lack connect with Pakistan. These include individuals from World Bank, IMF, and Citicorp, fertilizer and energy corporations and most recently IBA. Glance at the economic team now and the past prove a fact that though governments change, the puppet handlers remain the same. Management of Pakistan’s economy is a true racket; an extension of what the Supreme Court of Pakistan remarked, ‘Sicilian Mafia’.

The timings of the IMF straight jacket facilitated by home grown economic hangmen has serious implications for Pakistan’s security that lie in multi directional external, internal and hybrid threats, and in the safety and prosperity of its common citizens. It is only when people of Pakistan blessed with abundance take affairs into their own hands that this tribulation would pass.

At a time when Pakistan should have been making independent and sovereign choices, it is forced into compromises with implications for future generations. The situation in Middle East, US-Iran hostility, The US fleet that radiates equally towards Iran and Pakistan, and US designs of an expanded Middle East (including Pakistan, Afghanistan and some parts of Central Asia) that clash head on with the Chinese and Russian strategy of BRI and OBOR striving for the ‘End of Geostrategy’ (Nation: Fantasia, Playing with Fire 30 March 2019).

With the rising popularity of Pakistan Tehreek e Insaf, many vultures and hyenas were prepositioned as electable and professionals. Over the years they created a false notion of expertise in critical segments of national elements. In the process, they jettisoned nationalist reformists and professionals. Strengthened by a team of ‘fly by night reformers’ they have forced landed Pakistan into the present state of affairs.

In net effect, uncertainty of the past three quarters has perpetuated a situation of financial anxiety, speculation, financial hoarding and devaluation. This economic limbo is instrumental in evaporating over $ 8 billion the government received from friendly countries. It will continue to aggravate and lead to bigger stability crises. This is just what the ‘doctor ordered’.

Pakistan’s agreement with IMF is still opaque. IMF has added to the anxiety by making statements with multiple interpretations. With no end to speculative imagination, the money markets have gone into speculation. The government hardly has options to intervene.

Some aspects of IMF assistance even if not explained are undeniable.

First, the assistance of $ 6 Billion is equivalent to what Pakistan has to repay IMF. Most likely, it will be a loan to repay loans. Secondly, Pakistan’s borrowing from friendly countries in terms of currency swaps and dollar placement deposits will not be connected with the tranches of IMF. Pakistan will therefore have to continuously negotiate with China, KSA and UAE. Interestingly KSA and UAE are part of the US sponsored greater Middle East while China is hell bent on countering every US move in the region. Thirdly, the GDP gap had to be closed.

Pakistan’s primary deficit to surplus gap is nearly 2% of the GDP. By the end of next financial year, the IMF wants it to be converted to a surplus. This is only possible if budgetary expenses are cut by 2% of GDP or the growth shows a record high of nearly 5% of GDP (possibility) or the revenue is raised at least 2% of GDP (impossibility). In all fairness, the methodology would be to reduce some budgetary allocations while increasing revenue and growth.

With an economy in recession, increasing revenue will be the biggest challenge. Documentation of economy needs a paradigm shift and a new approach with appropriate tools. The teams of economic czars in the federal capital have no fresh ideas. So most likely, the General Sales Tax will be increased; FBR will continue withholding repayments and suck blood from stones. The effect will be higher interest rates, more cost inputs, expensive exports, price hike and inflation. With stagnation, poverty will increase. The amnesty scheme is a fire fighting with wrong tools.

The idea of the new Chairman FBR to get hold of the market middlemen though noble and revolutionary cannot be implemented in isolation. It is deeply tied to the informal economy. Without coopting the farmers and small scale manufacturers, it will have an adverse effect on circulation of money and growth. So far the government has refrained from evaluating or commenting on this very important and ignored aspect.

Existing agriculture policy only benefits the downstream industry. It does not agitate growth. There is widespread ignorance that grass root farmers and small scale manufacturers are the only miracle pill to kick starts the economy.

IMF wants that Pakistan maintain the same level of development funding as in FY 2018-19. Cuts will have to be made elsewhere but where? Given that revenue and growth could record positives, some budgetary cuts will have to be made in the defence expenditure.

Pakistan’s armed forces despite active deployments have continuously decreased their funding as share of GDP. Right now the defence budget of Pakistan is 3.5% of GDP or 18.54 % of the federal budget. Since 95% of this allocation is obligatory spending, therefore 3.32% flows back into the GDP and revenue. Therefore any cut in defence budget will have an adverse effect.

In the past three quarters the Rupee has devalued by Rs 29. This translates to a depreciation of 24%. In other words the cost of defence imports has risen by the same percentage. Constrained by such resource gap, armed forces deployed on war footing against external and internal threats will have to think ‘out of the box’ to ensure Pakistan’s security. Indian deployment, situation in Middle East, Afghanistan and internal threats aggravate the situation. Economics of Defence cannot be left in the hands of outsourced IMF babus.

Though the government seems to have run out of options, the military may have to once again take the lead role in National development like it did in the past. Instead of checking ghost schools, electricity meters and counting shops for FBR, it will have to assume a role in reclaiming 16 million acres of wasteland, facilitating farmers all over Pakistan in natural farming (Level 5), water distribution and opening workshops in every cantonment as technical training institutions. Within two years, IMF straight jacket will become more flexible.

Continued…..