Not so fast on the Islamic welfare state promise

August 10, 2018




News is floating around that the incoming new PTI government will, in the next few weeks, take loans from the IMF to shore up the weakening Pakistan economy.
The number being thrown around is $12 billion to $15 billion.

Question: Will the new Pakistani government be able to fulfill its promise to make Pakistan an Islamic welfare state on an IMF loan?
Answer: No, this is not possible.

When Pakistan, or any country, takes an IMF loan, the IMF says two things:
(a) Increase your taxes
(b) Cut down on unnecessary spending

In Pakistan's history, when taxes are raised, the burden mostly falls on the poor because the rich don't pay taxes.
It is difficult to get the rich to pay taxes.
So, it is easier for the government to tax the things that poor people need. Take mobile phone taxes, petrol, diesel, school fees...
So the common person will face a higher cost of living after an IMF bailout.

For a country to reduce unnecessary spending, it has to tackle state-owned companies such as the Pakistan Steel Mills, PIA that are hemorrhaging the government's cash.
But it takes a long time to cut spending in such companies. There is a big political price to pay for such decisions as well.

The easier way out is to cut spending on things that the common person needs.
This means the government cuts subsidies, reins in public development, sacrifices bus and railway projects -- all works that the average person uses.
This is what has been happening over the years.

These conditions mean that an IMF loan of $12b to $15b won't allow any new government to do the work that would make Pakistan an Islamic welfare state in the next 12 to 18 months.
This means that the common Pakistani will be squeezed by the higher cost of living and taxes. It won't make much difference to the rich.
In my opinion, if Imran Khan is successful in getting the rich to pay taxes then he will go down in history as being the best PM we've had.
But this seems difficult after an IMF bailout.

@UzairYounus is a South Asia analyst at Albright Stonebridge Group in Washington, D.C.