Financial reforms

US Ambassador Cameron Munter’s candid talk about why the US is being tough on Pakistan to implement financial reforms has ruffled some feathers in Pakistan. Ambassador Munter said that the US appears to be “intrusive because we care, we are the largest donor. Our aid comes as outright grant of assistance which is different from loans”. The US envoy was only stating the truth; something that we in Pakistan try to sweep under the carpet and instead blame the US for meddling too much. The truth is that Pakistan is a dependent economy and the Americans are our largest donors. Most of our politicians and the right-wing lobbies keep giving voice to anti-Americanism but do not acknowledge how much the US has helped Pakistan financially and militarily.

The PPP-led coalition government is a weak one. In order to please its allies, it had to reverse its decision of an increase in petrol prices. The US called this reversal “a mistake”. The government has still not been able to develop a consensus as far as the Reformed General Sales Tax (RGST) is concerned. What is ironic is that Pakistan itself set forward a programme of tax reforms and the IMF agreed to it instead of imposing its own stringent conditionalities for a loan. The RGST became a bone of contention between the government, some of its coalition partners and the opposition. Economically, the RGST makes a lot of sense but politically it is undoable for the moment. If the RGST is implemented, it will eventually lead to a documentation of the economy; something that Pakistan needs to do in order to progress economically. The traders do not want it implemented because they fear being drawn into the tax net. The PML-N’s opposition to the RGST is understandable from this angle since the traders are essentially part of their constituency. But it makes no sense for the MQM to be so adamant that the RGST not be implemented.

The US has been making demands that the rich in Pakistan should pay their taxes if they expect the donors to fund our economy. In trying to protect the rich elite, successive governments have been dilly-dallying on this issue. A larger tax base will go a long way in boosting the economy. We must understand that what the international community is demanding is in our larger interest as well. Our dependency syndrome is so strong that no government thinks along these lines. Pakistan is in need of massive industrialisation, land reforms and increasing the tax base in order to come out of the debt trap and achieve our goal of an independent economy.

(my editorial in Daily Times)

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