Here I am posting my letter "Economic Crisis in Pakistan" published in DAWN, May 01, 2011. The letter was too huge to be published in its entirity so the Dawn management had to cut the first part regarding IMF. I am posting the cut part as well to keep the continuity.

Please read and do comment.

Unpublished Part

Pakistan signed a multi-installment deal of $11.2 billion with IMF in 2008 while the former’s economy was on the verge of collapse. The IMF has issued $7.2 billion while $3.1 billion is pending which, according to media reports, the IMF has refused to issue unless major structural reforms are undertaken in the Economy. According the reports the Pakistan team has asked for another $ 3 billion loan that will enable the country to payback its loans. How pity we are borrowing money to pay the money back borrowed earlier. This is, perhaps the time to rethink the about the options available at home for revenue generation.

IMF is a specialized agency of United Nations but having its own charter whose members are 187. The basic aim for establishing such an institution was to put the economy of the world in order and foster economic growth along with reducing poverty after the WWI.
The third world countries got affected from the financial crisis erupted in the aftermath of collapse of fix exchange system in early 70s. Since then the IMF has been assisting the countries encircled by financial crisis by providing loans however, its loan has never been without conditions.

The major conditions are decrease in budget deficit, structural reforms in taxing system, closure of subsidy culture, under valuing of money and curbing developmental and non developmental expenses.

Published Part

THIS is apropos of the news report ‘Pak team returning without money’ (April 19). Economic managers, as well as political leaders, should revisit the plan to go to the IMF and should try to look inwardly.

Given the situation in Pakistan, some of these measures are counterproductive. Moreover, international financial institutions such as the IMF and the World Bank always interfere in internal affairs of Pakistan in reshaping the latter’s political and economic policies.

Time is ripe to understand the complex net of IFIs and consider some options to get rid of their policies if we want to see Pakistan developed. An across-the-board consensus on economic reforms is important.

Pakistan collects only Rs1,600bn from taxes, while the tax to GDP ratio is slightly less than 10 per cent as compared to India’s 15 per cent. Only 1.7 million out of 180 million people are paying taxes.

We need to increase the tax base by including agriculture and the real estate sector into it. The government has identified 750,000 people who are affording luxuries but are not giving taxes. These people should be taxed at any cost.

To be able to do so, we need to have a broad-based political consensus on the issue. The economy is on a critical juncture and politics is an unaffordable luxury at the moment.

Statistics show that tax collection is only Rs1.6tr while the expenditure for running the federal government is Rs400 million along with Rs400 million subsidy for loss-making state-owned enterprises (SOE). Here we need to better manage our finances.

Government expenditure can easily be curtailed by 25 per cent, according to many experts. If a private air or transport business can earn profits, why not government-owned organisations. It needs political will, leadership, vision and capable
professionals. There is no other way to tackle the issue of loss making SOEs; either make them profitable or let them be privatised if you cannot manage them properly.

Political stability is imperative for economic prosperity. Persistent economic policies, security of investments, corruption-free environment and a better law and order situation are some of the basic needs which a businessman wants. The government needs to improve each of the aforementioned areas to gain confidence of the investor.

It is time the agriculture policy was reconsidered. The policy envisages increased production of crops through enhanced support price which is counterproductive. It is because the common people find it difficult to earn their living in a situation where commodities are more expensive than the probability of getting job or daily wages.

If support price mechanism is changed with subsidising pesticides, seeds and fertilisers along with provision of expert opinion through efficient service of the agriculture department, the productivity can be enhanced.

This way we would be able to increase production, and ultimately the exports. This will decrease the amount spent on foods and would increase socio-economic development. This initiative would indirectly make the economy stable and
self-sufficient.

The policies of IFIs are counterproductive for economic growth, as well as for national security. According to the finance ministry, we need Rs800bn for debt-servicing each year. This means half of our taxes collected go to debt repayment. If this situation of getting more and more loans continues, I fear the day when all our taxes would not be enough for debt repayment.

The economy of the country is on the brink of collapse. It is the political leadership which has to take difficult decisions in this situation. But to do so, political will, leadership vision and character are of utmost importance.

SHAKEEL BABAR
Islamabad

Great job dear,i liked it and the first thing i red in ops editorial was yours letter ......And rose pak is ...Shakeel babar.

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" If you salute your duty,You need not salute anybody,but if you pollute your duty,You have to salute everybody"
(Dr A.Q.Khan)

Shakeel,

Your statistics are erroneous. I would like you re-visit your figures. Secondly, I think when you write about Economy then you should be precise in your facts and figures. You write, "the tax to GDP ratio is slightly less than 10 per cent as compared to India’s 15 per cent", this is extremely vague and doesn't suit any economist. Reason being, when you say less than 10%, that may be any figure below 10%. It would have been better, had you written exact figure of Economic Survey that tax-to-GDP ratio is 9.5%. And please recheck your figure of India's Tax-to-GDP ratio, that is 12.9% and not 15%.

Your criticism of IFI, IMF, or WB carries little weight. Why don't you study case studies of many other countries like India that also rely it on such monetary institutions for a debt with lower interest rates, however, they capitalize on their debts and generate more dividends out of it. Pakistan, on other hand, use these debts for unproductive purposes, leading them further into an economic chaos. There's something terribly wrong with Pakistan's economic policies and not IFIs!

The statistics are taken from various sources one of them is Dr Farrukh's column.

Secondly, you are right we should be specific but being specific is always related to specific period of time. In Economic Survey of Pakistan the tax to GDP ratio for 2010-11 is 9.5% while our estimated tax-to-GDP ratio for coming fiscal year 2011-12 is only 9.1%. So to be precise about these two figures, it is good to round up.

Thirdly, according to Heritage Foundation, India's tax to GDP ratio is 17.7%, renowned economic columnist Dr. Kamal confirm this as well. However, indian finance minister and Shahid Javed Burki have written the ratio as 15% in their columns. Further this is confirmed here as well under the head of "Revenues and taxation"

Regarding my criticism on IFIs, what I write is all about Pakistan. IFIs policies has been counterproductive for Pakistan owing to many reasons, some I have mentioned and the one you have mentioned is also a prominant one. This is due to same-for-all policies of IMF and mismanagement of Pakistan that today out of total tax collection of 1.6 tr we have to spare 800 mn for only debt reservicing. Better for Pakistan is not to seek help from IFIs rather generate its own resources. the article talks about the ways to generate resources from within.

the article was 1200 words and is edited by DAWN due to space constraints which has created a little inconsistency.

I am realy glad and thankful that you have taken up these issues. I think this will clear any doubt.

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Ahmad Shakeel Babar
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"If you really want to achieve something the whole universe conspires for you to get your dream realized."

yea, rose_pk is Shakeel Babar

__________________
Ahmad Shakeel Babar
.
"If you really want to achieve something the whole universe conspires for you to get your dream realized."