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The IMF wants military spending cut

Last week, the virtual meeting of Pakistan’s economic team and the International Monetary Fund (IMF) failed to deliver in Pakistan’s favour. Pakistan urgently requires the tranche of $1.2 billion, which is part of a $6 billion package agreed in 2019.

Currently, the IMF is unwilling to enter into a staff-level agreement with Pakistan because Pakistan has yet to implement in to the Memorandum of Economic and Financial Policies (MEFP), which contains policy suggestions by the IMF.

Hitherto, Pakistan has taken two kinds of steps: first, announcements of taking austerity measures to save money; and second, the passing of a mini-budget in the assembly to collect revenue immediately.

On February 22, Finance Minister Ishaq Dar announced to have secured a loan of $700 million from China’s commercial bank (China Development Bank) to weather the ongoing economic crunch. The loan is in addition to the loan of $30 billion that Pakistan already owes China and its commercial banks. Pakistan is forgetting that China, the world’s largest sovereign creditor, is disinclined to restructure loans, though it prefers to extend new credit.

On the one hand, the financial help from China is beneficial for raising Pakistan’s foreign currency reserves which had slid below $3 billion, whereas on the other hand, the act may annoy the IMF which is already apprehensive of Pakistan’s strategy to seek loan from the IMF to service China’s debt. It is known that seeking commercial loans is always available for a short period of time but on a high interest rate. Unfortunately, the interval in securing the staff-level agreement with the IMF is plunging Pakistan into the insidious trap of securing commercial loans to recover from the ongoing financial crisis.

On February 22, through holding a press conference, Prime Minister Shahbaz Sharif also announced austerity measures to save Rs 200 billion in a year through taking austerity measures such as curbing the buying and unnecessary usage of government vehicles; reducing expenses of every government department by 15 percent; and serving one dish to guests. These measures, however, are insufficient to meet the IMF’s MEFP suggestions, which are actually advice. The IMF is not demanding the declaration of austerity measures; instead, the IMF is demanding concrete steps taken on the ground to fill the exchequer immediately. That is, the IMF is least interested in promises and declarations, which the IMF thinks would help Pakistan equivocate the commitments made on restructuring the economy.

On the occasion, Sharif also announced the establishment of a single treasury account for the military audit. That is, the allocation of all funds would land in a single account of the Ministry of Defence, which would disburse money to various branches of the military: army, navy and air force. The single treasury account would help understand how much money is funnelled into the defence account. Further, the practice would close the sundry accounts meant for the flow of funds from the national kitty outside the main (single) defence account.

The IMF is still adamant to get its MEFP implemented by Pakistan. The IMF requires steps be taken to increase and secure revenue immediately before it delivers the bailout package. On the other hand, Pakistan is overly relying on austerity measures which offer promises for the future, but which fail to satisfy the IMF on the MEFP. Pakistan has yet to initiate privatization to get cash. 

This step was long overdue. Pakistan has been spending on non-developmental sectors more than it should spend on developmental sectors such as health, education and infrastructure. The past few years saw the spending of public money on making songs in the name of nationalism and cultivating private teams to dabble in politics in the name of fighting the fifth-generation hybrid war on social media. Similar other malpractices have been a waste of public money.

On February 23, as reported in the media, Pakistan’s Chief of Army Staff also consented to axe non-operational expenditures by one-third, besides the expenditures in the domain of utility bills. The announced savings would be Rs 20 billion a year. This was the army version of austerity measures. Interestingly, the IMF has permitted Pakistan to increase fund allocation to the Benazir Income Support Program (BISP) by Rs 40 billion (from the existing Rs 360 billion to Rs 400 billion). That is, the savings announced by the Army would be half the amount that Pakistan intends to increase in the BISP for the coming financial year. Here, Pakistan is overlooking the fact that the age of affording a huge military has gone. In the presence of nuclear assets and missile technology, the country needs a trained but trimmed affordable military.

On February 26, around 28 Pakistanis died, and some were still missing, after their boat sank in the stormy sea off Italy’s southern Calabria region. They were illegal migrants, looking for better prospects in Europe. They must be lesser Pakistani youth who could not be educated in Pakistan to live an honourable life or reach Europe as skilled workers. Pakistan still fails to answer the reasons for affording a huge network of cadet colleges, instead of mainstreaming the public money to deliver education to all. Pakistan is still lucky that its citizens tend not to question the unfair distribution of money at the national level.

The IMF had advised to cut the defence budget to pay the circular debt in the energy sector immediately. To generate instant income, increasing prices of oil and gas were other measures (as indirect taxes) for which the government has already announced a mini-budget to collect Rs 170 billion till the end of June this year. Pakistan thinks that, after getting the IMF bailout package, loans from certain friendly countries would be available to give a balanced budget in June for the financial year 2023-2024. However, this is hoping against hope. The IMF has asked Pakistan to keep the rise in prices of oil and gas permanent.

The IMF is still adamant to get its MEFP implemented by Pakistan. The IMF requires steps be taken to increase and secure revenue immediately before it delivers the bailout package. On the other hand, Pakistan is overly relying on austerity measures which offer promises for the future, but which fail to satisfy the IMF on the MEFP. Pakistan has yet to initiate privatization to get cash.

The government’s dilly-dallying is costing its people heavily. Presently, weekly inflation for core edible goods (such as vegetables and grains) has touched the dreaded 40 percent mark, thereby making the life of a common man miserable.

Dr Qaisar Rashid
Dr Qaisar Rashid
The writer is a freelance journalist and can be reached at [email protected]

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