Economic woes

HE outgoing Finance Minister Shaukat Tarin has spelled out the challenges to the Pakistani economy in the months ahead, much of this being common sense. These include lack of good governance, decline in investments, cost of the war against militancy, haemorrhaging public-sector enterprises, colossal waste in development projects, a dismal tax base and the politicians’ preference for import-based solutions rather than initiating serious structural reform to make the local economy more competitive internationally. Worse, with Mr Tarin set to exit, it’s not clear if the present government has the political will to address any of those serious problems. For many months it seemed that the finance minister was waging a lonely battle for good governance and with him gone it’s not clear who else will step up to be the ‘conscience’ of the cabinet.

Consider this. On Thursday, US Secretary of State Hillary Clinton raised the issue of tax dodging by rich Pakistanis in testimony before the US Senate: “The very well-off do not pay their fair share for the services that are needed, in health and education primarily.” As if proof of this was needed, the declarations of assets by parliamentarians made public earlier made for truly shameful reading. Pakistanis are expected to believe that their multi-millionaire and billionaire elected representatives in many cases do not even own a car. In such a scenario, it is difficult to see parliament doing the right thing and getting serious about tax reform when the parliamentarians themselves are habitual tax dodgers.

And yet at some point the reckoning must come. Presently, the country is paying for the profligacy and mistakes of the stewards of the economy in the last part of the Musharraf era. But the future may be worse if the present government simply keeps kicking serious reform down the road. Take the issue of tax reform and budget deficits. Arguably, with the economy in the doldrums, containing budget deficits should not be the central plank of the economic programme because other areas such as a security net for the vulnerable and spending to spur growth must also be emphasised. This is partly why the IMF has been tolerant of Pakistan’s rising budget deficit and has accepted a target of over five per cent (though that too may be exceeded). But the real issue for Pakistan is that revenue generation through taxes is beset by structural problems, meaning that not only is existing revenue generation unacceptably low but also that revenue generation cannot easily be ramped up when the time comes for paying all the debt the country is increasingly being saddled with.


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