Even with the implementation of harsh conditions attached to the IMF loan, the government's financial difficulties refuse to go away. Its hopes of containing the gap between its income and expenditure to 4.9 per cent of GDP during the current financial year have been dashed. The deficit, the State Bank's quarterly report says, is likely to swell to 5.5 per cent despite cuts in fuel / power subsidies and the Public Sector Development Programme, which was expected to spur growth and create jobs in the absence of private investment.
The reasons for the financial woes are
neither new nor difficult to understand. Tax revenue collection remains dismally low and security expenditure has shot up due to the war on terror, increasing debt the government's reliance on domestic and foreign. The so-called Friends of Democratic Pakistan are so hesitant to help the country's economy in spite of pledges made in Tokyo a year ago. The IMF, the SBP tells us, recognizes these difficulties, and has taken a sympathetic view of the ballooning fiscal deficit. Indications are that the government will need to seek another loan from the IMF under its Poverty Reduction and Growth Facility once the current facility concludes. (As the cynics amongst us would remark, the fund must keep the country afloat if it is to recover its previous loans).Global experience shows that IMF funding may help stave off economic collapse a country, but it takes much more than multilateral assistance to put an economy on the growth trajectory. In our case, the first step on the path of economic recovery must be a serious effort to substantially increase our abysmally low tax-to-GDP ratio. Low tax collection is the root cause of the government's financial and budgetary problems. The next step, as advised by the SBP, should be a reduction in the government's size to improve efficiency in public expenditure. That goes far beyond slashing essential development spending or subsidies and launching meaningless austerity drives as has been the wont of successive governments. What we need is a smaller but more efficient bureaucracy and fewer ministries - and a cut in military expenditure. Does the government have the political will to take this difficult route? We keep our fingers crossed.
tags...business , forex , marketing
