By IRNA,
Islamabad : The International Monetary Fund (IMF) has asked Pakistan to cut its defence expenditure.
Adviser to Prime Minister on Finance, Shaukat Tareen has said that Pakistan is at war on its western border and no effort should be made to slash down the defence expenditure at this critical juncture.
“If the armed forces keep their expenditures within the envisaged allocated amount for this fiscal year, it will be a great achievement on their part,” he said.
The adviser hinted at raising the discount rate in the near future, as insisted by the IMF, saying the core inflation stood at 17 per cent while the discount rate was 13 per cent at the moment, which could be reviewed to tackle the inflationary pressure in a more effective manner.
The economy of Pakistan has been facing many serious challenges such as trade deficits, galloping inflation, increase in the level of poverty, power outages, water shortages, closure of industries and food insecurity.
The country’s inflation is running at around 25 per cent, and its foreign currency reserves are rapidly depleting, forcing the government to seek emergency cash advance from friendly countries and international financial institutions.
The government of Pakistan has already said it would seek the IMF loan only as a last resort if it cannot secure some US$5 billion it needs to stabilize its economy.
“Within the first seven days of November, we will complete the indoor consultation for formally approaching the IMF,” Tareen has said.
However, if the current “political realities”, are analyzed, Pakistan seems to have little option but to go to the IMF. The United States also wants Pakistan to work with the IMF.
An IMF-backed plan would require Pakistan’s government to cut spending and raise taxes, among other measures, which could hurt the poor. The government of Pakistan has already taken steps to reduce expenditures keeping in view the difficult economic situation being faced by the country.
It is said that all the other expenditures of the country would have to be brought down to reduce the fiscal deficit from 7.4 per cent of the GDP to 4.3 per cent on June 30, 2009.
There are other non-development expenditures as well that could be reduced such as the reducing the fuel limit for bureaucrats, continuation of the ban to purchase cars.
For imposing the agriculture tax, the government will have to move a constitutional amendment in the Parliament for seeking a nod before imposing this tax and if the PPP government could devise a mechanism in this regard during its five-year term, it would be an achievement on their part.