Pakistan is not out of the woods
By Abdul Khaliq (CADTM Pakistan)
Almost a year ago in August 2008, Pakistan was at the brink of default. Its foreign exchange reserves were hitting the bottom rock of $4 billion, depleting rapidly in the range of $250 to $330 million weekly, which were hardly sufficient to fulfill requirements of one month of imports.
Pakistan’s sovereign debt and liabilities were the riskiest, which had crossed the $45 billion mark. Pak rupee had depreciated to 23 per cent. The gap between balance of trade was widening to the alarming extent. Poor law and order situation was scaring away the investors. Financial analysts were predicting Pakistan teetering on the ...view middle of the document...
The only thing IMF did not emphasize to cut was the military budget. Besides privatization of industrial units Pakistan under IMF pinch is also offering one million acres of farmland for sale to countries seeking to secure their food supplies.
Under IMF pressure the government has not only withdrew fuel subsidies, but also increased electricity rates causing widespread protests. The government was also forced to remove about 125 projects from the Public Sector Development Program (PSDP). Another 432 projects are facing implementation delays because the government is trying to reduce spending and bring down budget deficit to 4.2 per cent of the Gross Domestic Product as promised with IMF. Funding for the higher education sector has also been cut by 73 per cent. This cut in the PSDP is by now estimated at Rs.100 billion. Some unconfirmed reports suggest that Pakistan may seek another $4.5 billion from the IMF. So far it is also not clear how much money would be made available and on what terms and for what specific purpose.
In persuasion of to IMF conditionalities, Pakistan’s Federal Board of Revenue has resorted to a tyrannical structure of taxation. It is pertinent to mention that the tax system of Pakistan, was progressive till 1990, but converted into a regressive regime in 1991 with the introduction of massive indirect taxes. As a result, during these 19 years (1991-2009), the tax burden on the poorest households increased by 17.4 percent, while it declined by 15.9 percent for the richest households.
The IMF is now bent upon destroying the agriculture sector of Pakistan, through the imposition of new taxes, despite the fact that this sector already pays a number of taxes. Though IMF facility has brought temporary macro-economic stability, but without a production-led economic growth, economic fundamentals will remain weak.
About 700,000 jobs have been lost because of closure of more than 300 textile units over the past two years as a result of energy crisis. Till 2007 the sector was contributing 60 per cent of the country’s exports and employing 38 per cent of the workforce. It had an 8.5 per cent share in the Gross Domestic Product. (Daily The News 26 April 09).
In view of country’s never-ending economic woes and more importantly the roaring threat of Taliban’s possible access to nuclear assets of Pakistan, the Friends of Pakistan-Group of 31 countries and international agencies gathered in Tokyo on 17 April 09 to pledge $5.28 billion for uplift of social sector in Pakistan. US and Japan would give $1 billion each over a period of two years. Saudis will offer $700 million. European Union’s $640 million will come in four years.
Though the break-up of the entire $5.2 billion is not yet available, Iran, UAE and Turkey have pledged $330 million, $300 million and $100 million respectively. The EU’s amount includes $150 million pledged by Germany. While these funds would shore up the weakening rupee and replenish foreign...