Pakistan is on the path of international economic isolation. The serious analysts are in a state of shock with their fingers crossed. They are not ready to believe what is now unfolding before their eyes. A decision taken today in national interest is reversed the next day under pressure, again in the national interest. The ruling party of Pakistan has finally decided to sacrifice economy and the well being of the common man along with it, at the altar of power. The price for staying in power was huge but who cares as long as someone else (read: common man) is paying the price.
The government was relying on imposition of RGST for sailing through the economic problems but all the mainstream political parties have opposed it tooth and nail, for their own reasons which include safeguarding the interests of the elite and putting the government in a difficult situation. Ironically those who opposed this new levy had no alternative strategy except the vague rhetoric of minimizing the institutional corruption in the tax machinery. It seems that the government will work overtime to print notes during the remaining two years. Incidentally, governor of the central bank has already warned against the devastating implications of deficit financing.
Has the government decided to abandon the economic reforms? The instant reaction of US and IMF to reversion of increase in the petroleum prices confirms it. The government has embarked on the path of economic isolation internationally simply to remain in power. These are short-cut methods and will badly affect the life of common man.
According to Financial Times, Pakistan’s Prime Minister, Yusuf Raza Gilani, announced the deferral of an IMF-backed tax reform on Friday. The reformed general sales tax, which Pakistan has been discussing with the IMF for more than a year, was supposed to be introduced in July last year to boost tax revenues.
“We will not go forward [with the RGST] until consensus is evolved,” said Mr Gilani during a visit to the southern port city of Karachi, where he visited the headquarters of the Muttahida Qaumi Movement.
Mr Gilani reversed a plan to increase oil prices on Thursday to win back the support of MQM, after the party withdrew from the ruling coalition in a move that denied the government parliamentary majority. MQM confirmed on Friday that it would rejoin the coalition.
Analysts warned that the decision to delay the RGST would further intensify concerns over the government’s ability to reform Pakistan’s troubled economy.
“This is a near fatal blow to the reform process,” warned Sakib Sherani, a former adviser to the finance ministry. “The RGST was meant to finally begin documenting the vast informal economy in a country with an alarmingly low tax to GDP ratio.”
Mr Gilani’s decision will only cause more problems with the IMF. Pakistan does not have much to show in the form of successful reforms being undertaken currently. The RGST is a key part of Pakistan’s agreement with the IMF and its postponement could put the $11bn loan package in jeopardy. The IMF said that raising the ratio of government revenue to national income was essential to returning Pakistan’s public finances towards sustainability and the sales tax was an indispensable component in this effort.