The Third Tranche

Pakistan has to re-study the concept of a market economy which runs on the principles of liberalisa-tion, deregula-tion, and privatisa-tion, besides competi-tion.

Economy is now every­thing in Pakistan, which has reached a staff-lev­el agreement with the Inter­national Monetary Fund (IMF) for the final and third tranche amount­ing to $1.1 billion to conclude the Stand-By Arrangement of $3 billion. On the prob­able approval of the agreement by the IMF’s Executive Board, Pakistan keeps its fingers crossed.

This is called respite – the post­ponement of the threat of sover­eign default on external debts. However, this is not a solution. Pakistan has to undertake struc­tural reforms: first, to reduce the budget deficit and, second, to re­duce the trade deficit. Regard­ing the budget deficit, one-half of the solution is to increase reve­nue by broadening the tax base. Pakistan is devising policies to broaden the tax net to include exempted or sub-taxed sectors such as retailers, wholesalers, agriculturists, etc. However, Pak­istan is overlooking the other half of the solution. That is, to de­crease expenditure. Pakistan is not devising any policy (to make it public) to reduce non-develop­ment expenditure. This is how Pakistan’s approach is lopsid­ed. The lopsidedness is bound to take centre stage when the range of the tax net is broadened and when the rate of tax is augment­ed. Lavish and unchecked spend­ing by government functionaries may not convince people to pay taxes. Similarly, the royal life­style of the ruling elite may not persuade people to contribute. It means that soon the streets would be heated up.

The paradox engulfing Paki­stan is that, on the one hand, the country is keeping with the leg­acy of the colonial past where­as, on the other hand, the coun­try is trying to match with the needs of the modern concept of market economy.

Pakistan has to re-study the concept of a market economy which runs on the principles of liberalisation, deregulation, and privatisation, besides competi­tion. These principles militate against the penchant for con­trolling the economy and, by ex­tension, regulating society. Paki­stan’s state structure is reluctant to lose its grip on society just like a colonial power refuses to set a colony free. Though Pakistan’s constitution enshrines sufficient desired freedom to society, how­ever the state structure controls society through the handling of the economy. For instance, the ritual of protocol consumes reve­nue but it does not leave onlook­ers uninfluenced – of the power of might. Spend taxpayers’ mon­ey to sway the same taxpayers. Pakistan is reluctant to the priva­tisation of the Pakistan Railways and Pakistan International Air­line (PIA), as their privatisation would reduce the size and pow­er of the state structure. Of them, Pakistan is trying its best to save the Railways from privatisation by inviting China to invest in this sector, but Pakistan is fac­ing problems in inviting a sim­ilar interest in the PIA. No Arab country is attracted, not even the United Arab Emirates. Hence, the PIA has to go. Generally speak­ing, privatisation would be the beginning of the deterioration in the desire to control society.

In April, Pakistan would be opening negotiations on seek­ing the Extended Fund Facili­ty (EFF), thereby making reli­ance on the IMF compulsory. After receiving the disbursable amount permissible under the third tranche, Pakistan would be transitioning to any EFF. In the agenda of the IMF, nowhere is this enshrined that the or­ganisation can refuse to extend loans to a seeking country. This is where the catch lies. The IMF may reprimand a country eco­nomically but it cannot refuse a loan. Pakistan is the best bet­tor. What the IMF could not do in the current bailout package, the IMF would do in the EFF which would precede the budget in June. Low growth and high in­flation would be the hallmark of the budget. It simply means that the EFF is bound to facili­tate a kind of budget that would reset the trajectory of Pakistan’s economy and hence Pakistan’s society. The combination of low growth and high inflation is suf­ficient to transform society – to make it come out of the clutches of the state structure. Under the influence of the IMF’s EFF, Paki­stan is bound to be transformed from a semi-Socialist republic to at least a semi-Capitalist democ­racy. The socialist way of gover­nance cannot last long.

There are surfacing hitches in the smooth running of Pakistan. The Centre’s gesture of disre­spect to female Baloch protes­tors is bound to haunt the coun­try. The protestors endured cold wind and rain but remained steadfast under the open sky in December and January in Is­lamabad. Their will was tested. They should not have been mal­treated. The Centre should not have let Dr Mahrang Baloch, who was leading the protest, go emp­ty-handed back to Turbat, Balo­chistan. It is not only that the Baloch youth are annoyed, it is also that the Pashtun youth are infuriated. Finding the ground ready, the Tehreke Taliban Paki­stan is gathering strength, under one ruse or the other. In fact, Pak­istan’s western half is in revolt. What economic prospects can be visualised is anybody’s guess.

In short, Pakistan has to do economic recovery, but the challenges are both multiple and immense. Most corners are open. Some challenges come naturally with history, others are contrived. Perhaps, exper­imenting with obvious danger is an entrenched practice. One wishes, the situation would not spin out of control.

Dr Qaisar Rashid
The writer is a freelance columnist. He can be reached at

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