“Bonus season at the IMF” – Not institutions we destroyed

By Ahmad Nadeem Gehla

Institutions of a state are always the first causality of  dictatorship. Although dictatorships promote a feeling of ’stability’ which encourages the investor, the absence of institution soon takes away the fruits of stability. The house of cards built by the ’savior’ soon collapses as development not backed by strong institutions is  never sustainable.

In Pakistan, we have time and again experimented the same approach of a ’savior emerging on a white horse’ and after every dictatorship ended up begging from IMF and international lenders. The quick fix approach has always prevented us from strengthen institutions. Every time we start the journey to build institutions which can support sustainable development, the agents of ’status-quo’ come up with another rosy idea of quick fix. Do we really afford to adopt these ideas ?

First appeared in The News Daily in Response to a quick fix idea.

This is with reference to Mosharraf Zaidi’s article “Bonus season at the IMF” (January 19) and his subsequent clarification (February 4) in response to Dr Meekal Aziz Ahmed’s letter (January 30). Many people criticise the IMF, and some of the criticism is quite valid. Lenders around the world want to make sure that borrowing states use that money for stated goals and improve their fiscal management. In case a state is able to improve its fiscal performance by meeting these conditions, the IMF debt and supervision are rather beneficial. The IMF only demanded that Pakistan should improve its tax-to-GDP ratio which is lowest in the world and withdraw subsidies while improving the system of ‘targeted-subsidy’ to those actually deserving. There is nothing wrong with such conditions. But then it comes to taxation, subsidy mechanism and implementation institutions of the borrowing state.

In case of Pakistan financial institutions are either corrupt or totally absent. The Benazir Card scheme targeting the poorest of the poor is a good example of reaching the underprivileged rather than general subsidies. But then the institutions could not be built overnight. In such a situation governments are left with no option except generalised taxation like the VAT and taxation on commodities. As suggested by Dr Ahmed, a multilevel collection system of the VAT is more proper. But in societies like Pakistan where institutions are corrupt it will open new doors for corruption. No doubt these measures prove to be counter-productive and add to the burden on the poor, the government does not have any other option in the absence of functional institutions.