What happens when the money from the IMF loan is used up?FOR all practical purposes, Pakistan has been assured payment of $4 billion by June 2009 and $3.6 by June 2010 under IMF’s standby facility, approval thereof by IMF executive board is now a formality since IMF’s terms of lending have already been agreed by Pakistan (though not debated openly).
Given the current state of the economy, ruined by successive regimes, and no workable alternative offered by critics or available to the government, the IMF package may, at least, prevent default on external debt repayments.
While the IMF funds would pay the debt instalments due until June 2010, with this fresh debt and small chunks provided by S. Arabia, China, IDB, ADB and WB the total external debt will cross $54 billion. Policy makers should worry about generating resources to pay the annual instalments of this huge debt, and keep the economy going, with minimum affordable levels of inflation, incomes and unemployment.
Critics of the IMF package should accept that the economy’s current state reflects the then government’s inaction during 2004-08 when stricter fiscal discipline could have avoided distress borrowing from the IMF. That scenario can be repeated if politicians still don’t focus on preventing revenue waste or misuse. Besides, by 2010, with rapidly depleting funds, IMF may not have the $3.6 billion it intends to lend then.
A change of focus is imperative because a perception prevails that in recent years, foreign inflows were wasted, a stark reminder thereof being the baffling trade deficit ($20.75 billion) recorded in FY08. While the mercenary attitude of banks and businesses is largely responsible for this crippling gap, blindness and sometimes active participation of state functionaries in escalating it is unforgivable.
Import of plant and equipment was a big contributor to the trade deficit that escalated during 2004-08. Not a bad development in itself but signs are emerging that some of these costly imports (paid for by export earnings, remittances and investment flows) were bogus transactions that brought in junk. In fact, these overtly legal transactions facilitated flight of capital worth billions of dollars.
This organised fraud was unmasked by a recent discovery (hushed up soon thereafter) that scores of containers disappeared from Port Qasim over a period of time without being screened for what they contained or being accounted for in the port’s record. .
What no parliamentarian asks for is the institution of an independent multi-stage verification process to ensure the imported goods being as per import documents. This no longer poses a problem given the fact that Port Qasim has the facility to x-ray containers and produce images of the contents of the containers – particularly important in case of expensive imports of plant and equipment.
What we need is a stiffly implemented procedure that makes it imperative for port and customs authorities to tally the specifications of the containers’ contents with the packing lists sent by exporters along with the shipping documents based on which imports are paid for. What also need to be inquired into and up-dated are the technical abilities of the customs staff to credibly complete this procedure.
A more basic issue is determining the appropriateness of the equipment being imported; with DFIs now extinct, and banks lacking this technical capacity, a question mark hangs thereon. In good times, scrutiny down to this level may seem overly intrusive, but not when Pakistan must spend every penny very wisely and ensure that it imports appropriate equipment. Politicians should ensure institution of such checks.
The many instances wherein export rebates were paid out fraudulently should have triggered a revamp of the rebate claiming system. To-date, except for half-hearted investigations into these scams, we heard nothing about a system revamp and augmentation, which reflects poorly on the parliamentarians; given this track record.
Posting FBR inspectors in business houses to check that GST and WHT being collected by them are paid to FBR is flawed; it will corrupt the system even more. The solution lies in mandating GST and WHT collecting agents to use foolproof FBR-designed software for recording sales, tax collection, and its payment to FBR; that FBR thought of introducing this globally employed check only now is amazing.
The other area needing parliamentarians’ focus is the mandate given to moneychangers that lends itself to differing interpretations by moneychangers, regulators and law enforcers. This mess can’t go on any more. The state must re-define very precisely the inflow and outflow types the moneychangers can handle. Experience leaves no room for the moneychangers to undertake any kind of outflows.
Under the terms agreed with IMF, Pakistan must cut its fiscal and current account deficits. This target can’t be achieved unless the government comes up with a clear strategy for raising domestic resources and, simultaneously, cuts both public expenditure and imports. This is a colossal challenge because it will require making sacrifices and optimising economies, neither a pleasant proposition.
To ease both, we need a strategy and action plans for (a) revamping the taxation system to tax un-taxed or inadequately taxed sectors, (b) provide infrastructure support to exporters of high value-added goods, (c) set up agro-based industries to make this sector a major exporter that also creates jobs in rural areas, and (d) revive competitiveness of import substitution industries to steadily cut imports.
This should be our first priority completing which in a purpose-oriented fashion would require vision and consultation. The crucial condition for success would be incorporating in a transparent manner the stakeholders’ view (not selectively but openly), to forestall vested interests undermining national priorities. Implementing this strategy is imperative for stabilising Pakistan’s macroeconomic indicators.
The government seems obsessed with hastily privatising big state assets, which is odd. Such an effort entails extensive preparatory work to avoid charges of favouritism and corruption. Also, this isn’t the time for such risky ventures because investors with credentials for generating optimal post-privatisation economic benefits may not come forward until Pakistan’s macroeconomic indicators depict stability.
So far, only highlights of the plan prepared by a panel of economists to achieve macroeconomic stability have been released; the plan is yet to be shared in full and debated with the stakeholders who must own it and strive for its success. Are the planners scared about the real world bursting into the musings of their ivory tower, or is some other flawed consideration holding them back?
Given the current state of the economy, ruined by successive regimes, and no workable alternative offered by critics or available to the government, the IMF package may, at least, prevent default on external debt repayments.
While the IMF funds would pay the debt instalments due until June 2010, with this fresh debt and small chunks provided by S. Arabia, China, IDB, ADB and WB the total external debt will cross $54 billion. Policy makers should worry about generating resources to pay the annual instalments of this huge debt, and keep the economy going, with minimum affordable levels of inflation, incomes and unemployment.
Critics of the IMF package should accept that the economy’s current state reflects the then government’s inaction during 2004-08 when stricter fiscal discipline could have avoided distress borrowing from the IMF. That scenario can be repeated if politicians still don’t focus on preventing revenue waste or misuse. Besides, by 2010, with rapidly depleting funds, IMF may not have the $3.6 billion it intends to lend then.
A change of focus is imperative because a perception prevails that in recent years, foreign inflows were wasted, a stark reminder thereof being the baffling trade deficit ($20.75 billion) recorded in FY08. While the mercenary attitude of banks and businesses is largely responsible for this crippling gap, blindness and sometimes active participation of state functionaries in escalating it is unforgivable.
Import of plant and equipment was a big contributor to the trade deficit that escalated during 2004-08. Not a bad development in itself but signs are emerging that some of these costly imports (paid for by export earnings, remittances and investment flows) were bogus transactions that brought in junk. In fact, these overtly legal transactions facilitated flight of capital worth billions of dollars.
This organised fraud was unmasked by a recent discovery (hushed up soon thereafter) that scores of containers disappeared from Port Qasim over a period of time without being screened for what they contained or being accounted for in the port’s record. .
What no parliamentarian asks for is the institution of an independent multi-stage verification process to ensure the imported goods being as per import documents. This no longer poses a problem given the fact that Port Qasim has the facility to x-ray containers and produce images of the contents of the containers – particularly important in case of expensive imports of plant and equipment.
What we need is a stiffly implemented procedure that makes it imperative for port and customs authorities to tally the specifications of the containers’ contents with the packing lists sent by exporters along with the shipping documents based on which imports are paid for. What also need to be inquired into and up-dated are the technical abilities of the customs staff to credibly complete this procedure.
A more basic issue is determining the appropriateness of the equipment being imported; with DFIs now extinct, and banks lacking this technical capacity, a question mark hangs thereon. In good times, scrutiny down to this level may seem overly intrusive, but not when Pakistan must spend every penny very wisely and ensure that it imports appropriate equipment. Politicians should ensure institution of such checks.
The many instances wherein export rebates were paid out fraudulently should have triggered a revamp of the rebate claiming system. To-date, except for half-hearted investigations into these scams, we heard nothing about a system revamp and augmentation, which reflects poorly on the parliamentarians; given this track record.
Posting FBR inspectors in business houses to check that GST and WHT being collected by them are paid to FBR is flawed; it will corrupt the system even more. The solution lies in mandating GST and WHT collecting agents to use foolproof FBR-designed software for recording sales, tax collection, and its payment to FBR; that FBR thought of introducing this globally employed check only now is amazing.
The other area needing parliamentarians’ focus is the mandate given to moneychangers that lends itself to differing interpretations by moneychangers, regulators and law enforcers. This mess can’t go on any more. The state must re-define very precisely the inflow and outflow types the moneychangers can handle. Experience leaves no room for the moneychangers to undertake any kind of outflows.
Under the terms agreed with IMF, Pakistan must cut its fiscal and current account deficits. This target can’t be achieved unless the government comes up with a clear strategy for raising domestic resources and, simultaneously, cuts both public expenditure and imports. This is a colossal challenge because it will require making sacrifices and optimising economies, neither a pleasant proposition.
To ease both, we need a strategy and action plans for (a) revamping the taxation system to tax un-taxed or inadequately taxed sectors, (b) provide infrastructure support to exporters of high value-added goods, (c) set up agro-based industries to make this sector a major exporter that also creates jobs in rural areas, and (d) revive competitiveness of import substitution industries to steadily cut imports.
This should be our first priority completing which in a purpose-oriented fashion would require vision and consultation. The crucial condition for success would be incorporating in a transparent manner the stakeholders’ view (not selectively but openly), to forestall vested interests undermining national priorities. Implementing this strategy is imperative for stabilising Pakistan’s macroeconomic indicators.
The government seems obsessed with hastily privatising big state assets, which is odd. Such an effort entails extensive preparatory work to avoid charges of favouritism and corruption. Also, this isn’t the time for such risky ventures because investors with credentials for generating optimal post-privatisation economic benefits may not come forward until Pakistan’s macroeconomic indicators depict stability.
So far, only highlights of the plan prepared by a panel of economists to achieve macroeconomic stability have been released; the plan is yet to be shared in full and debated with the stakeholders who must own it and strive for its success. Are the planners scared about the real world bursting into the musings of their ivory tower, or is some other flawed consideration holding them back?
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