Pakistan: The bitter IMF pill.

As much as newly elected PM Imran Khan, did not want to go to the IMF with begging bowl in hand, the sad reality is that its door is being knocked on for an emerging funding to prevent a serious default of Pakistan's $95 billion debt. In 2015 this debt stood at $66 billion and the the obvious question is $29 billion additional debt was amassed in just three years? To harp on the inefficiencies and mismanagement of previous governments is not going to solve the crisis at hand. Clearly, if the $8 billion emergency package is approved by the IMF it will come with a whole host of bitter pills for the people. Increased taxes, increased power rates, removal of some subsidies and a demand for austerity.

There is an old adage that a country deserves the leaders it chooses. If we as Pakistani's have chosen past governments who have dug us deeper into the debt hole with each term of office then we ought to be ready for the pain to claw our way back out of it. Let there be no mistake that this will not take 100 days and Imran Khan and his team ought to be careful to over promise a recovery too soon. I am not sure he has the right team in place, given that Atif Mian, a prominent economist who happened to belong to the Ahamadi sect, was forced to leave the advisory council in a shameful bowing to religious fundamentalists.

The cost of living will no doubt go up with these measures but there are some fundamental structural issues that need to be resolved. Fiscal discipline is indeed one of the main priorities coupled with not only austerity but also ensuring that developmental expenditures are spent in the right way. It seemed one of the previous governments felt building motorways was the only way to show for progress; even though they may have helped, but infrastructure improvements on their own is like firing blanks at a tank coming your way. Investment into industries, especially export related industries has to be encouraged, bringing confidence to the private sector and also ensuring that the accountability drive does not needlessly target the genuine business investments.

The tax base has to be broadened; it is projected that currently only 1% of Pakistani's pay income tax. While efforts and promises to broaden the tax base have been made in the past the results have been mediocre. Something innovative has to be thought out about this and there has to be a careful rethink of the tax structure too. Cigarettes as an example are still 25% of the price of what they are in Dubai! I believe export related earnings should be given a tax credit that can be used to off set the income tax for the owners and a strict vigilance be maintained to make sure over invoicing and other tactics are not used to inflate export earnings to misuse the tax incentives.

There also has to be a frank talk with the Military and the military defense expenditure to be brought down. Yes there is a war on terror, for which the US has said they will not pay, and there are security concerns across the board, but surely the military can also see where they can cut expenditures and bring about a reduction in of the largest line items on the budget expense side. In addition, rationalizing the size of the government administration would also be a useful undertaking. However as much as the expense items can be controlled or reduced the real trick is to get the income side to perform better.

The income mainly would be in three broad categories; exports, taxes and remittances from Pakistani's abroad. While the Khan government has said they will announce some measures for the last item some simple steps are needed. The embassies in countries where there are large Pakistani populations working need to be improved. As a matter of policy in these countries no positions in the embassies should be filled by political appointees, and the best of the best should be placed there. In some cases the embassies and consulates are in a terrible state of disrepair and one feels one has walked into a 1950's building which may fall down any time.

The big question is that with an IMF package will come loads of conditions and no matter how our jingoistic feelings prompt us to consider we are being dictated to, the fact remains these conditions have to be accepted and only when measures within the country improve can there be a change in the mood of the lenders. I am not sure that the Imran and his team quite understand that the backbone of their success will ultimately be judged not on the rhetoric that is espoused from the pulpit but the success of some hard decisions that have to be taken. The team that should carry this out has to be first class and a good first step would be to make sure all the PTI stakeholders do not again raise objections to the color, sex, or religion of any member of the team.