The Executive Board of the International Monetary Fund (IMF), in the wake of the staff level agreement in Islamabad on March 20, 2024, will approve by late April the last tranche of SDR 828 million (around US$1.1 billion). It created, as usual, a mood of jubilation in official quarters, as in the past. Indeed, ours is a strange country where the ruling elites celebrate debt dependency—which has become chronic with every passing day.
The IMF Executive Board approved the much-needed bailout package for Pakistan on July 12, 2023—a nine-month US$ 3 billion standby arrangement (SBA. It was the 23rd time that Pakistan took funding from the IMF since 1958, and the fourteenth bailout since 1988. Pakistan has so far availed an SBA 13 times since 1958, underscoring its persistent balance of payment challenges. With availing the ongoing SBA, Pakistan emerged as the fourth-largest borrower from IMF. With this detestable history of approaching IMF for bailouts, the question remains how would our rulers utilise the new mid-term extended fund facility program requested during the just concluded parleys with IMF, given their past track record?
The press release, issued after the staff-level agreement between the IMF staff and the Pakistani authorities, notes: “The new government is committed to continue the policy efforts that started under the current SBA to entrench economic and financial stability for the remainder of this year. In particular, the authorities are determined to deliver the FY24 general government primary balance target of PRs 401 billion (0.4 percent of GDP), with further efforts towards broadening the tax base, and continue with the timely implementation of power and gas tariff adjustments to keep average tariffs consistent with cost recovery while protecting the vulnerable through the existing progressive tariff structures, thus avoiding any net circular debt (CD) accumulation in FY24. The State Bank of Pakistan remains committed to maintaining a prudent monetary policy to lower inflation and ensure exchange rate flexibility and transparency in the operations of the FX market.”
All the six budgets presented by the government of Pakistan Muslim League (Nawaz)—PML-N—from 2013-2018, four by Pakistan Tehreek-i-Insaf (PTI) from 2018 to 2022 and two by PDM from 2022 to 2023 have pushed the country towards further debt enslavement.
In 2016, the issue of chronic debt dependence and callous attitude of Pakistan’s ruling elites was highlighted earlier. In 2024, the situation has worsened. All the six budgets presented by the government of Pakistan Muslim League (Nawaz)—PML-N—from 2013-2018, four by Pakistan Tehreek-i-Insaf (PTI) from 2018 to 2022 and two by PDM from 2022 to 2023 have pushed the country towards further debt enslavement. The four-time Finance Minister and now Foreign Minister, Ishaq Dar, while heading the economic team of alliance government of Pakistan Democratic Movement (PDM) finally obeyed all IMF’s commands in revised budget 2023-24 as he did when PMLN obtained US$ 6.6 billion bailout package in 2013.
The lingering and deepening economic crisis, especially the bourgeoning fiscal deficit, has been eroding Pakistan’s capacity to repay huge external loans of over US$ 133.16 billion. Every time before agreeing for fresh bailout or new EFF program—this time requested for US$8 billion—IMF having high stakes in Pakistan, expresses anguish and dissatisfaction over performance of Federal Board of Revenue (FBR)—in particular what it calls fixing ‘ambitious targets’ and then missing the same with a wide margin every year.
The dismal performance of FBR—provisional collection of Rs. 7,180 billion for fiscal year 2022-23 against the original target of Rs. Rs. 7,470 billion (revised was Rs. 7,640 billion) pushed the fiscal deficit to nearly 8% of GDP obviously worrying IMF about repayment of its outstanding debts.
In the current fiscal year, FBR is assigned target of Rs. 9,415 billions. Like previous years, FBR is claiming to cross the target! Experts are doubtful in view of recession and weak enforcement capabilities of the authority. Track record of FBR shows that it has perpetually missed targets for the last many years. FBR’s performance is puzzling for IMF and donors as in the past World Bank provided over U$100 million for six-year-long extended Tax Reforms Administration program (TARP) and on conclusion tax-to-GDP ratio declined from 11% to 8.2% and tax gap increased from 75% to 150%.
Nobody questions the enormous tax benefits available to the riyasti ashrafiy’a (state oligarchy). There should be a public campaign that absentee landlords, most of whom are members of parliaments and their relatives are members of militro-judicial-civil complex, should reveal how much agricultural income tax was paid by them and their near and dear ones.
The real tax potential of Pakistan is not less than Rs. 20 trillion—direct taxes Rs, 11 trillion and indirect Rs. 9 trillion—but the government is begging for money both externally and internally. Nobody questions the enormous tax benefits available to the riyasti ashrafiy’a (state oligarchy). There should be a public campaign that absentee landlords, most of whom are members of parliaments and their relatives are members of militro-judicial-civil complex, should reveal how much agricultural income tax was paid by them and their near and dear ones.
All the judges, high-ranking public servants, including serving and retired generals, should also be required under the law to make public how many plots they received during service, what are total assets owned by them and their family members and how much tax was paid annually. Any person, who is a tax delinquent or has been beneficiary of any loan write-off, should be debarred from contesting elections. All kinds of exemptions and concessions provided under various tax codes should be withdrawn.
The rich and mighty are not paying income tax on either their agricultural or non-agricultural income. Most of them are landowners-cum-industrialists-cum-politicians and are engaged in massive tax evasion—case of cartelization and tax evasion bonanza in sugar industry is a classic example. Adding insult to injury, taxes collected from the citizens is wasted on unprecedented privileges and perquisites meant for elites—militro-judicial-civil complex, landed aristocracy, industrialist-turned politicians and unscrupulous businessmen.
We can never come out of our present mess unless control of resources vests with people instead of elites. Institutions like FBR serve the interests of the mighty classes. They would continue to do so till the time people of Pakistan exert pressure on provincial governments to devolve fiscal and administrative powers at the grassroots level to local self-governments. Fiscal decentralization and municipal self-governance can end dependence on federal government that is epitome of bad governance, only piling up national debt.
The federal government must reduce its monstrous size and earmark revenues for debt retirement, creation of employment zones and provision of social services. This will inspire the people to contribute to the national exchequer.
We need to overhaul the inefficient tax machinery. The appointment of Chairman and members of FBR should be through public hearing by joint Select Committee of National Assembly and Senate and not on the wishes and dictates of the ruling political party headquarters.
The federal government must reduce its monstrous size and earmark revenues for debt retirement, creation of employment zones and provision of social services. This will inspire the people to contribute to the national exchequer. This is the only way to mobilize revenues through voluntary compliance, making taxes simple and low-rate and at the lowest possible cost. Simultaneously, the provincial governments must slash their administrative expenses at least by 30%. All perquisites given to civil-military bureaucracy and judiciary must be monetized.
State lands, lying unproductive or occupied by elites, should be leased out for industrial, business and commercial ventures. It will generate substantial revenues and help in rapid economic growth. On the contrary, imposition of more oppressive taxes are detrimental for inclusive development. The root cause of our major problems is inefficient and corrupt governments and huge spending on luxuries of the elites. The solution is dismantling of elitist structures and state capture by vested interests through empowerment of masses at grass root level by implementing Article 140A of the Constitution in letter and spirit—it will be the beginning of true democratization of and economic prosperity for all.