IMF (not people) friendly budget 2011-12
June 03, 2011
Budget 2011-12 is nothing but a set of measures in line with the prescriptions of the International Monetary Fund, simply ignoring the economic difficulties being faced by the people in the so-called democratic regime.
Unlike the times of previous three current budgets by the PPP-led incumbent government, people were not pinning hopes whatsoever on the latest fiscal policy. Previously they had been anticipating the political elected democratic government to pay attention to the miseries of the commoners.
But the ruling political leadership remained preoccupied with the formidable task to ascertain its longevity in terms of ensuring minimum required number in the parliament to stay in power. At the time of the first budget this government was supposed to present in 2008 it faced a divorce from the PML-N that was given Finance Ministry to share the power in coalition set-up.
Therefore the PPP’s first budget in this term was orchestrated by the bureaucrats since Naveed Qamar was holding additional charge of the Finance Ministry after PML-N Ishaq Dar had left it. Former Finance Minister Shaukat Tarin presented the second budget of the current government who only cared about his own class that of the business. Finally the IMF’s own man Dr Abdul Hafeez Sheikh landed in the driving seat of the economy who presented the third budget and now ensured the strengthening of the IMF approach to manage the economy.
The IMF approach had nothing to do with the masses and their economic woes. They are up for ensuring the returns on foreign investments as well as loans to Pakistan. They are not even interested in focusing seriously the reforms they prescribe for the countries like Pakistan. Their aim is to keep these developing countries that have extra-ordinary importance in the international geo-politics entangled in the debt trap. Since Pakistan still has a key role to play in the American war in Afghanistan with its mostly negative externalities across the globe starting from Pakistan, IMF is bound to pay special attention to the country.
Putting the IMF interest in the shoes of the national wellbeing Finance Minister Sheikh recently told this scribe recently that healthy (pleasing) interaction with the Fund was essential for the country. “Staying in one of the IMF programmes is of high value for Pakistan not necessarily for the money but as referral to the foreign investors and bilateral trading partners,” he observed. “Otherwise the foreign exchange reserves position reinforced with the record remittances we hardly need any more IMF financing,” he maintained.
That clearly indicated that the Finance Minister considered the country staying more or less dependent on the IMF was a blessing. It must be in disguise if at all it was a blessing for the country. The Minister in this context appeared to be oblivious of the fact that the notion of staying dependent on the IMF undermines the projection of the concepts of self-reliance.
A quite important question sounds relevant here that why this much of foreign funds inflow was not reflected in terms of positive impact on the living standards of the masses in the country. On the contrary, the poverty incidence remained on the rising side despite one after another loan from the multilateral as well as bilateral and commercial lenders. One possible answer could be the lack of sincerity on part of the handlers of these funds ranging from from the bureaucracy at the lending institutions to the top economy managers.
Despite a number of poverty reduction growth facilities, stand-by arrangement loans, and other programmes of the IMF, World Bank and other financial institutions, Pakistan’s economy failed to develop absorption capacity and much desired reliance to external as well as internal shocks. At many testing occasions, the country’s economy rushed to plummet to the rock bottom level in one-go. Pakistan has been through these kinds of phases many times, rightly pointed out a well known economist Shahid Javed Barki. Citing instances of 1996-97 when China bailed out, 2001-02 post-9/11 economic fiasco wherein the US rescued, and finally the 2008 when the IMF came in with a generous standby arrangement loan, he made a valid point that none of these large rescue packages induced the policy makers to change the structure of the economy.
Resultantly, Pakistan’s economy is now deep in debt which has been constantly upsetting the government’s financial position squeezing fiscal space to be utilized on the development side. Ironically, the IMF on top of the other multilateral financial institutions have been stressing upon establishment of the social security and safety nets in order to prevent people from slipping down the poverty line, was now itself allowing the government to cut the development spending.
It is pertinent to note here that the government stepped on the move to implement the IMF prescribed Reform General Sales Tax which is basically the new name of the value added tax at a flat rate of 15 per cent across the board inclusive services and goods. Until recently it hardly considered sincerely the proposal of withdrawing about 400 exemptions on the General Sales Tax having nothing less than Rs 100 billions revenue impact. Now when the government failed to implement the RGST in first place and secondly after realizing its revenue impact becoming much lesser than that of exemptions’ withdrawal it resort to the latter decision.
In withdrawal of exemptions means removing protection to the items primarily agri-related products that were in deserving state. Even till to date USA is the largest provider of subsidies to its farm sector like many other countries including Australia and China. But Western powers through the international financial institutions are coming down hard on Pakistan to remove subsidies from the Agriculture and the life-line domestic consumers of energy items.
It has become like an open secret of Pakistan’s annual fiscal policy that debt servicing tops the current expenditures, followed by the defense spending. At the same time the ongoing war on terror has given law and order expenditures the top position in the civil administration expense. This scenario hardly leaves any room for revision in the pays and pensions. That is why perhaps, the government once again was up for giving yet another interim relief’s lollypop to the public sector employees. Restructuring of the pays and pensions’ mechanism in the public sector remained a dream so far. The interim relief hardly suffices the compulsory short-fall of their budgetary routine. On the contrary it puts a pressure on prices that result in terms of rising inflation.
Therefore in the budget 2011-12 with growth rate target of 4.2 per cent, inflation at 12 per cent, deficit slipping out of the government’s control, investments on the decline resulting in fueling unemployment poverty there is hardly anything for the people of Pakistan. Nor had they anticipated any good out of the latest fiscal policy.