- Teres no going back to the ast
Currently, the International Monetary Fund (IMF or the ‘Fund’) stands halted with Pakistan. The pandemic is starkly bringing to surface a need for policymakers across the globe, both in terms of revisiting neoliberal basis of policy and moving towards more creative and involved methods for both reaching correct prices and in turn reducing an otherwise exacerbating income inequality situation, and in terms of financing in climate-friendly endeavours to reduce carbon footprint and in the course shifting growth and jobs from fossil-fuel industry to a renewable energy sector.
The current programme with the IMF simply cannot allow this much-needed ‘transformed’ approach to economic development– the overall run-of-the-mill aggregate demand structural adjustment programmes will not allow progress for recovering ‘green’. Firstly, there is need for greater public investments in the wake of the high level of uncertainty and recession-hit profits of the private sector. Within this is needed the effort to improve the efficiency of public sector institutions, for which is needed a set of policies more reform-oriented than the slim set of institutional reform guidance/conditionalities that the current IMF programme contains.
Hence, the tax structure needs not only to be made more progressive, but the burden of taxation should be much greater on the very high income brackets. This would also entail purging the burden-causing taxes on the general public, for instance, minimizing the petroleum levy and rationalizing margins of oil companies, where the latter already had a bigger chunk to bring home due to the political economic pressure tactics of the collusive nature of the oil supply sector as seen in the June oil supply manipulations
Secondly, there have been shifting sands in terms of adopting neoliberal-based policies given the deep failings of such policies during the last one decade in particular, especially after the reasons that led to global financial crisis, and ‘austerity’ measures, for instance in the European Union (EU) reform packages of the ‘troika’– of the European Central Bank, European Commission, and the IMF– that did not allow needed economic recovery that delivered for most, and in turn exacerbated income inequality; which also feed-into the rise of populist/extreme political parties on the fringes in many countries, only to sway the otherwise moderate and saner political base to irrational political stances.
Sadly, the current IMF programme in Pakistan continues with the legacy of this neoliberal mindset of aggregate demand squeeze, and too much liberalization of the private sector and markets. Such liberty has been irrational because of the existence of an environment of weak economic institutions and regulations, especially in developing countries like Pakistan, which has allowed the ‘invisible hand’ involved of political-economic collusion to influence policies to extract resources from the ‘many’ to the ‘few’. Hence, the government needs to renegotiate the current IMF programme so that it allows balanced focus on aggregate demand and supply policies, and enables government to take the country out of recession through greater investments and institutional reform.
It should help government in reducing both the carbon footprint in economic growth and the labour market, and in reducing income inequality, which would require the programme to let government go for institutional reform and not rely on quick fixes, for instance through rapid privatization, undue focus on tariff enhancements but rather subsidizing costs for industry and households– especially as they struggle during the recession– and in the meantime fix the energy sector through reform on the supply side to nullify the need for such tariff adjustments in the first place.
Thirdly, the current programme needs to allow greater tax breaks for the low income ends, and a lot more tax burden on the higher income brackets. Hence, the tax structure needs not only to be made more progressive, but the burden of taxation should be much greater on the very high income brackets. This would also entail purging the burden-causing taxes on the general public, for instance, minimizing the petroleum levy and rationalizing margins of oil companies, where the latter already had a bigger chunk to bring home due to the political economic pressure tactics of the collusive nature of the oil supply sector as seen in the June oil supply manipulations. The same goes for tax breaks for households in terms of proportion of taxes in electricity tariffs, where the ceiling of such breaks is increased much more than for the lifeline users. The difference for domestic resource mobilization should be made through taxing more heavily on sectors that have fared well during the pandemic like stock exchanges and tech sector, and also on the very rich segment in general that has evaded taxes. Moreover, there should be a better effort planned under a renegotiated IMF plan to clamp down on the informal sector.
The current programme ‘ties’ the hand of the government on all these ends, and any effort by policy makers to return to the same programme with any significant change cannot allow for a ‘green economic recovery’ that delivers for all in the economy. The government should approach the Fund with this agenda– most of which is anyways reflected in IMF policy talks from by its MD, and chief economist– for a much needed renegotiated ‘green’ IMF programme.
