IMF Approved USD 6 Billion Loan. But Can Pakistan Meet Revenue Target To Service The Debt?
Muhammad Ziauddin in this article comprehensively dissects PM Imran Khan’s political strategy and links it with the economic crises that Pakistan faces today. Amid the euphoria over IMF’s loan for Pakistan approved on Wednesday, Ziauddin says that ‘our debt burden has gone up further for servicing which a good part of the current budget is to be spent leaving not much for kick starting the economy after taking care of escalating administration expenditure and a large allocation for the defence despite the offer by the Armed Forces to freeze it at the last year’s level’.
Since the day he assumed the office of Pakistan’s chief executive, Prime Minister Imran Khan has been making it increasingly clear that he does not wish to work with the parliamentary Opposition, that he does not wish to recognize it as such and that he does not wish to accord it with the dignity of being a government-in-waiting. That so far he has not been seen shaking hands with any of the main opposition leaders in the House is indicative of his deepest personal and political aversion for these leaders.
With his utterances and actions since the National Assembly elected him as the leader of the House, the PM has been conveying the impression rather strongly that in his opinion those sitting on the left side of the isle in the House are a bunch of thieves and dacoits who had, he believes, plundered the country white during the last ten years. He appears to believe even more strongly that this group of plunderers has no right to be sitting in the elected houses and that all of them deserve to be sent to jail for good and the keys thrown away.
That is perhaps why he was loath to let the leader of the Opposition, Shahbaz Sharif become the Chairman of the Public Accounts Committee of the National Assembly (Shahbaz has already resigned from the post, presumably for personal reasons), or see under trial elected members attending the NA sessions on Speaker’s production orders. Though he and most other members of his government would insist that they had nothing to do with the arrest of various opposition leaders by the NAB or any other official investigation agency including the anti-narcotics force, their faces, nevertheless, would invariably betray a broad hint of self-satisfaction over every one of such arrests.
And the PM’s insistence, almost on daily basis that he would not let the ‘thieves’ go unpunished and that he would not give an ‘NRO’ to these elements come what may, nevertheless, makes it abundantly clear that the PTI government would leave no stone unturned to get the Opposition leadership ousted from the country’s politics for good.
The Prime Minister appears convinced that by continuing to conduct media trial of these ‘corrupt to the core’ politicians and denying them at the same time even a modicum of legitimate relief would soften them enough and in due course of time, to start coughing up, taking advantage of the plea-bargain window, the billions that they had siphoned off, in his opinion, from the treasury.
He also appears convinced that the unclaimed benami bank accounts would yield billions as would the amnesty scheme that ended on July 3. Here one would like to caution the PM that it would be a totally uninitiated banker who would hand over the amount in the benami accounts in his bank to the government.
Bankers know all the tricks and more on how to make such accounts disappear for the benefit of their loyal clients and at times for their own benefit. And as for the benami assets are concerned it would serve as a God sent bribery bonanza for the FBR field staff.
Meanwhile, the national media seems suddenly to have stumbled upon the PTI-led coalition government’s intriguing attempts to indulge in horse trading. In the first place, floor crossing is legally banned. Secondly, for any of the Opposition MNAs and MPAs to give up his/her mother party and cross over to PTI, they would first have to resign their elected seats and then contest by-elections on these seats on PTI ticket. Too risky and too round about. So, why is then the PM meeting all those PML-N MPAs? And that too after having got both the federal and Punjab budgets passed seemingly without any problems?
But, of course, not without any problems. Both the budgets were passed by very thin margins. The federal budget went through with 176 votes in favour. This would mean a razor thin margin of only 4 votes. The PTI has 156 of its own votes plus 28 of its coalition partners’. So, then how does one explain the absence of as many as eight votes on the day the budget was put to vote?
Since almost all the coalition partners were paid their demanded pound of flesh in return for their votes, one can assume rather safely that votes of all the coalition partners were in the House on the final voting day. The missing votes were certainly those of the PTI’s who perhaps were not in total agreement with the budget. Perhaps they had come under pressure from their constituents undergoing the agony of all round price increases.
It was, perhaps, a panicked PTI which not knowing how to plug the expanding holes in the party because of the unpopular budget has turned to the futile exercise of horse trading in the hope that the rebellion rearing its head within the party would somehow be arrested through gimmickry. Also, the expected unseating of the pro-government Chairman of the Senate seems to be adding to the PTI’s panic.
State Of The Economy
Meanwhile, the economy appears to be sliding further down the drain as both local and foreign investment has dried up, inflation is at an all-time high, interest rates too have gone up in response to galloping rate of inflation, rupee’s rate of exchange vis-à-vis the US dollar has been fluctuating at an unhealthy pace making it rather impossible to make investment projections for short-and medium term. Because of the unfriendly measures announced in the budget, especially for the industrial sector, one cannot rule out the possibility of the wheels of economy slowing down considerably making it doubly impossible for the FBR to collect the record revenue of Rs. 5.5 trillion budgeted for the current fiscal year.
The IMF Executive Board has approved our application for a three-year bail-out package amounting to a little over $6 billion. The first tranche from the loan is expected to be disbursed any time soon as we have fulfilled all of Fund’s front-loaded conditionalities. The World Bank and the Asian Development Bank are expected to follow suit with loans of about $2-3 billion.
So, with the loans already obtained from Saudi Arabia, UAE and China plus the offer of oil on differed payment for the next three years by Saudi Arabia, plus the concessional assistance from multilateral aid agencies, in the meanwhile, our debt burden has gone up further for servicing which a good part of the current budget is to be spent leaving not much for kick starting the economy after taking care of escalating administration expenditure and a large allocation for the defence despite the offer by the Armed Forces to freeze it at the last year’s level.
The economy it seems is likely to slow down considerably over the next 12 months pushing up the rate of unemployment in the country and supplies falling too short of demand causing in the process further price increases, adding further to the rate of inflation and the discount rate.
National Defence Council
The PM seems to be banking on the newly formed National Development Council (NDC) to lift the country out of its current economic crises. This super-duper non-constitutional body in which the Army Chief has been given a seat is expected to come up with a panacea for all our economic ills, acceptable to both the civil and military authorities.
The PTI realizing very late in the day that it does not have any professional economist worth the name in its fold had rushed in from outside three ‘experts’ in their respective fields in the nick of the time to negotiate and clinch a deal with the IMF. Going by our past experience of such developments, it is safe to assume that all the three outsiders – Hafeez Shaikh, Raza Baqir and Shabbar Zaidi – were vetted and presented to the government by the GHQ.
And since these three are a gift from the Army, the government perhaps believes that the best option for it under the obtaining circumstances is to give up the economic part of governance to the Army which also controls the security and foreign policies, especially the aspects which impact our relations with India, Afghanistan, China and the US.
The Bajwa Doctrine
Indeed, the Chief of Army Staff (COAS) General Qamar Javed Bajwa has spoken comprehensively twice since October 2017 on how best to get out of the current economic rut. Bajwa believes that there cannot be any sovereignty in the absence of economic sovereignty. Speaking last week at a national seminar titled ‘Pakistan’s Economy: Challenges and Way Forward’, organised by the Institute of Strategic Studies, Research and Analysis (ISSRA) at National Defence University (NDU) in Islamabad, the COAS had endorsed the undeniable link between security and economy, stating that both directly complement each other. He highlighted Pakistan’s efforts for restoring regional peace that will lead to better trade connectivity and reiterated the importance of regional security.
“Countries cannot develop individually; it is the region which develops. For our region to develop we need to have greater regional connectivity among all neighbors,” he stated.
One cannot but agree with the COAS wholeheartedly especially when he says that there is an undeniable link between security and economy, that both complement each other, that countries cannot develop individually, that it is the region which develops and that for our region to develop we need to have greater regional connectivity among all neighbors.
All neighbours would mean, all neighbours including India with which we have a historic dispute over Kashmir. And it was because of this dispute that we have remained incommunicado trade- and economy-wise with our eastern neighbour over the last so many decades.
On October 10, 2017 speaking at a seminar on the ‘interplay of economy and security‘ in Karachi the Army Chief had said that Pakistan needed to expand its tax base, bring in financial discipline and ensure continuity of economic policies to be able to break the begging bowl. And while discussing the region he told India and Afghanistan that “our destinies are inextricably linked”, adding that he sincerely believed that we “will sink or sail together.”
Comprehensive National Power
In China, the collapse of the Soviet Union seemed to have encouraged greater respect among strategic policymakers for the views of professional economists in shaping strategic and foreign policy choices. It was at a defence establishment think tank that Chinese strategists developed the notion of Comprehensive National Power (CNP), which gave a higher weight to economic and social aspects of national security over the purely military.
CNP is a measure of the general power of a nation-state. It can be calculated numerically by combining various quantitative indices to create a single number held to measure the power of a nation-state. These indices take into account both military factors (known as hard power) and economic and cultural factors (known as soft power).
The Right Economic Model
Taking a cue from the China experience one would like to see PM Imran Khan give a couple of seats in the NDC to Pakistani economists of international repute; not, of course, those who blindly subscribe to the Milton Friedman’s Chicago school of thought.
Also read: Economy Will Decide Imran’s Fate
This school of thought has given rise to massive inequality globally. Currently only eight persons are believed to have cornered as much wealth as accruing to half of the world population. This economic model is the actual mother of all corruption.
Indeed, when you work free market economy alongside democracy without the fetters of regulations, you simply cannot keep corruption from getting out of control. Of course, it is not possible to eliminate corruption completely from any society but in civilized societies they use social controls like, genuinely independent judiciary, truly fearless and un-buy-able media and a really strong parliament to keep corruption at a minimum.