IMF Chief’s warning
Acknowledging Pakistan’s successful completion of IMF’s 3 year EFF program, the visiting IMF Chief’s speech at a recent panel also contained warnings regarding Pakistan’s public debt (currently at 65% of our GDP) that the government would do well to heed. Attention must be given to her reminders of the reforms needed to ensure the possibility of reinforcing economic resilience, raising the growth rate and making said growth more inclusive.
The necessity of increasing exports and foreign investment aside, Pakistan desperately needs to increase its tax base – something that the government has, unfortunately, had little success with. One truly memorable such event was when, upon being asked to declare their assets for tax purposes, the traders’ community retorted that they were not educated and hence had never kept an account of how many assets each individual possessed. The government could have responded by cutting tax directly from the amount in the individual’s bank account after it reached a specific figure. But when the traders responded by threatening a strike, the government responded by backing down. That’s not exactly the most reassuring example of its policy implementation track record to base future attempts on.
And as Lagarde pointed out, the problems don’t end there: the high cost and straggling supply of electricity make for high costs of production. That, coupled with the existing perception of corruption, does not make for the best campaign to attract foreign investors, as Lagarde so succinctly pointed out.
These reforms won’t be the easiest for the government to implement – but implement them it must. Investing in education, and making an example of tax defaulters is as vital as decreasing the service charges of electricity, thus attracting investments and contributing to our industries. Only then will Pakistan be able to, as Lagarde put it, retool its economy and train people to take advantage of the developing situation in an ever changing global market.
