Finance Minister Miftah Ismail’s visit to Washington comes at a very difficult time for Pakistan’s financial situation. The new government knows that it has to reenter the IMF programme in order to keep the economy afloat, but the outgoing government’s final decisions while in power are a major stumbling block in securing funds through the Extended Fund Facility or any other IMF programme. This visit is perhaps an attempt to soften the blows and allow for some middle ground to be found.
But this is a difficult proposition. In simple terms, the problem is that the government can no longer pay for the many relief measures it is paying for through national accounts. The fuel subsidy, power tariffs, subsidies on staple items and other forms of support (such as cash disbursals) through the Ehsaas programme, and with the industrial amnesty scheme on top of all of this will be a source of government spending that does not lead to the expansion of growth. The IMF would want Pakistan to do away with all of these policy measures, alongside cutting the Public Sector Development Programme to Rs600 billion.
The fuel subsidy removal and power tariff adjustment would lead to an immediate inflation spike, something that the government does not want to face public backlash for immediately after coming into power. But even if we take IMF out of the equation, the fact remains that this populist subsidy is not affordable, considering its per annum cost is more than Pakistan’s spending on defence. The government must take the hard, but necessary decision of removing this subsidy to allow for market conditions to take over.
The industrial amnesty must similarly be binned. Both previous PTI and PML-N governments have relied on this strategy to widen the tax net, but this impact of new injections into taxation is perhaps offset by the opportunity to whiten money for a large segment of the population. It is hoped that the new government ends this policy and does not look to give any other forms of amnesty to potential taxpayers going forward.
What is left behind is the Ehsaas programme and public sector development spending. The new allied government must fight tooth and nail to keep both programmes from getting any funding cuts whatsoever. Public sector development figures are already low, and judging by the moratorium extended by the Balochistan government in the tail end of last year, funds for development are already in short supply. Projects lie incomplete and focus on human development remains low. Any further cuts to the budget will only make this situation worse.
Similarly, all components of the Ehsaas programme must be retained in their entirety. In a time when inflation is at its peak, welfare measures from the government play a significant role in making lives easier for average citizens. If the fuel and power adjustments are being done away with, then Ehsaas will be relied on even more to fill the gaps left behind by rising prices.
Out of the five conditions set by the IMF, the government should make the difficult choice and accept at least three. But it should strive to get some relief in the new deal, to allow for breathing room for both policymaking in government, and living as a member of the general public.