Muneeb ur Rehman

Imbalance in the balance of payments has left Pakistan with no option but to seek the IMF’s assistance. As a condition of the bailout package, the recent reductions in development projects will adversely impact the growth prospects, Hafeez Pasha, former federal minister for finance, told WealthPK. As per the Annual Budget document released by the Ministry of Finance, the federal government has allocated Rs1,150 billion for development projects for FY2023-24. This allocation signifies a notable growth of 28.02% when compared to that of the previous fiscal year. Pasha said development projects served as a catalyst for growth due to their multiplier effect. With the cuts in funds for the development projects, the allied sectors of cement, steel, engineering services, and logistics would suffer, he emphasized.

Tax collection is yet another variable that will bear the brunt of the IMF conditions, he added. “Investments in development projects are accompanied by an enhanced rate of aggregate demand. An increase in aggregate demand, consequently, tends to increase tax collection in absolute terms”. “The IMF’s suggestion to the current caretaker government not to allocate further funds for development projects is in line with its preoccupation with fiscal prudence. However, in reality, the cuts in development funds are correlated to rising poverty and unemployment in the country,” he said. Pasha said the industrial growth rate in Pakistan was hovering around 20% of the GDP. This stagnation is a product of economic conditions characterized by a weakened demand for industrial products.

The pivotal stages of construction and implementation in projects thus assume a significant role in amplifying demand for inputs from the industrial sector. He said the conditions set forth by the IMF pertaining to the utilization of financial resources were favorable when directed towards curtailing non-development and unproductive expenditures. This includes, as underscored by him, expenditures that are recklessly utilized by the public representatives and government officials. In summary, development projects play a pivotal role in catalyzing economic growth through infrastructure development and by creating employment opportunities. The IMF conditions, therefore, do not augur well from the growth perspective of the country.

Credit: INP-WealthPk