Dar was talking a lot of sense

The Finance Minister Ishaq Dar has been successful in seeking commitment from the IMF for providing a bailout loan package of $5.3 billion for the next three years under the Extended Fund Facility (EFF), though with some conditionalities that include phasing out the tariff deferential subsidy in the next three years, sustained improvement in tax collection as well as a significant widening of tax bases and more equitably shared tax burden and phasing out of all existing statutory regulatory orders (SROs) and other steps that grant special rates and tax exemptions. Almost all these measures are already envisaged in the budget for 2013-14.

The only new element in the deal is the requirement that the Council of Common Interest (CCI) must ensure economic discipline by provincial government to generate the surplus of Rs 23 billion to meet the overall budget deficit and maintain their balance with State Bank of Pakistan. So, the finance minister was almost right when the said that the IMF loan would be obtained on our own terms. The strategy adopted in the budget almost fulfilled the expectations of the IMF. Jaffrey Franks, representative of IMF, addressing a press conference with Ishaq Dar acknowledged the fact that the recently announced budget for 2013-14 is an important step in the right direction.

It is perhaps pertinent to mention that almost all the countries of the world obtain loans to fund their social and development plans and the lending institutions like the IMF, the World Bank, Asian Development Bank and other international financing entities before extending loan facility to a client do make sure that the country has the ability to utilise those loans productively and also be in a position to repay them within the stipulated period. So they always extend this facility on the terms that they perceive will realise those objectives. There is nothing wrong with seeking loans from international agencies provided they are productively invested. Unfortunately, the present loan is being sought to actually repay the previous loan facility of the IMF. Pakistan has to pay $3.2 million to IMF during the next year and that is why it has asked the Fund to make available $3 billion upfront to be able to fulfil this obligation. It is kind of a debt-swap and Ishaq Dar is right in saying that this facility will not add much to the overall foreign debt liability of the country.

Pakistan has an internal debt liability of Rs 14.3 trillion at the moment and a circular debt of Rs 500 billion out of which Rs 326 billion have already been paid. It faces a huge budget deficit and its overall financing requirements on external front stand at $11.5 billion during the current fiscal year. To meet these requirements, Pakistan contemplates to approach the World Bank and Asian Development Bank to raise $4.7 billion besides envisaging $4 billion through private investment and privatisation proceeds.

The budget seeks to reduce budget deficit from 9 percent to nearly 6 percent and the strategy is based on raising more revenues through widening the tax base, rationalisation of tariffs and economising on the subsidies through a system of targeted subsides. The Minister for Water and Power Khawaja Asif has already indicated increase in the price of electricity for the commercial and industrial consumers as part of the strategy to phase out the untargeted subsidies that disproportionately benefit the well-off sections of society. However, a system of targeted subsidies will remain in place to fully protect the most vulnerable strata of society. It is pertinent to note that the cost of electricity per unit is Rs 14 while it is being provided to consumers at the rate of Rs 9 per unit, with an across-the-board subsidy of Rs 5 per unit. The measures being taken by the government may hurt some sections of society in the short term and may also be resisted by certain sections of the society averse to paying taxes, but there is no option available other than raising the level of domestic revenue generation for funding development and social welfare projects and gradually reducing dependence on foreign loans and grants. The economy is in shambles and it would require policies in conformity with the ground realities and a futuristic vision, divorced from political consideration as has been the case hitherto. We need a vibrant and all encompassing tax system like most of the countries of the world that discourages the culture of exemptions and SROs which put tremendous burden on the national exchequer.

Tiding over the energy crisis, so vital for the industrial development, is the top most priority of the government designed not only to tackle the current power deficit but also adding to the power generating capacity to meet the future needs that includes installation of new power projects and changing the energy mix by reversing the existing equation of 75 percent from the high cost ingredients and 25 percent from the low cost fuels, which will lead to reduction in the cost of electricity per unit, with benefit passed on to consumers.

Nonetheless, the energy sector will undoubtedly require huge investments mobilised through domestic and external sources. The Prime Minister is currently in China and a number of agreements have been signed for enhancing co-operation between the two countries. The Chinese have agreed to invest hugely in energy and communication sector to nudge the economy towards the path of sustained economic growth. All this sounds very nice but ultimately the cost of all these projects will have to be borne by Pakistan, rather the people of the country, to be more precise. Every one of us will have to share the burden to make things happen to secure our future and leave a healthy legacy for the posterity.