Dr Zubair Khan in a open message to Prime Minister Imran Khan said that Pakistan should call for renegotiation of the IMF program before it is too late.
First the IMF is contributing a paltry $2.2 billion net over three years for a program whose only purpose is to ensure that Pakistan can repay Wester creditors and the earlier IMF loan. The program will generate funds for repayment by taxing the economy to the extent that it can neither export nor compete with imports leaving Pakistan more dependent on western creditors than before.
The only way for Pakistan to avoid default and build a foundation for generating its own foreign exchange resources with price stability is to pursue the adjustment path suggested in Dr Zubair Khan’s proposal to the PM and the Ministry of Finance in January 2019. There is no escape from adjustment of the irresponsible fiscal position of this year and recent years, but based on sharp retrenchment in expenditures both at the federal and provincial level, drastic reduction in the number of over 900 non performing institutions.
On the revenue side tax administration reforms that can reduce tax evasion together with selective reduction in tax concessions without taking away export and investment incentives. The new program must only rely on reducing the 20% line losses in the power sector and 11% losses in the gas sector to address the financial imbalances the utilities.
To encourage domestic capacity utilisation of industries and to encourage exports as well as stimulate investment to keep the growth rate healthy during the adjustment program, Pakistan must eliminate all Import duties on machinery, raw material and intermediate inputs.
A fundamental change from the IMF approach requires that the interest rate be kept no more than barely positive in real terms.
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