US’ worst fears realised as Pak Govt stalls economic reforms to stay in power

ISLAMABAD - Pakistan’s governing party has patched its coalition government back together at a steep price that officials in Washington had feared: the collapse of the reforms critical to stabilising the nation’s economy.

Muttaheda Qaumi Movement rejoined the Pakistan People’s Party-led federal government on Friday after its reservations over petroleum prices and reform of the General Sales Tax were addressed.

The bargain underscored an increasingly urgent problem for both Pakistan and its international backers, especially the United States, which has pushed the government to improve its tax collection and make hard economic choices to ensure the nation’s solvency, the New York Times reported.

This week’s turmoil indicated that if the coalition government wants to survive, that path might be impossible, it added.

The Obama administration did not publicly criticise Pakistani officials for the deal on Friday, apparently deciding that a worse outcome would have been a collapse of the government when the US was depending on it for help in fighting the war in Afghanistan, said the report.

For the time being, then, Pakistan may remain dependent on international assistance, including billions of dollars in military and civilian aid from the US, even as fewer than two per cent of Pakistanis pay income tax, with many wealthy members of government among those who pay nothing, it added.

“The message international donors have received is that if the government cannot absorb the pressure on petrol prices, then how can it take up major economic reforms?” Ashfaque Hasan Khan, dean of the business school at the National University of Sciences and Technology in Islamabad, told the local news media.

The increase in fuel prices was deeply unpopular, hitting the poor hardest, and fraught with political risks of its own.

“All the political parties saw this as an opportunity to show they are on the side of the people,” said Marvin Weinbaum, a scholar in residence at the Middle East Institute in Washington and a former State Department analyst on Pakistan.

But the deal is sure to ruffle the International Monetary Fund, which has promised Pakistan more than 11 billion dollars in loans to tide the government over, said the report.

The country has received 7.6 billion dollars so far, but the fund has extended the time for its next payment and has not given Pakistan any further instalments since May.

“The extension will provide time to the Pakistani authorities to complete the reform of the General Sales Tax, implement measures to correct the course of fiscal policy, and amend the legislative framework for the financial sector,” the IMF said through its press office on Friday.

The Pakistani government appears to have calculated that the country is too strategically important for the US and the IMF, and that even though Pakistan has balked on reforms, the international community would come through with support, the report said.

“Nobody realizes that the government of President Zardari is essentially performing a juggling act,” said a senior Pakistani government official, referring to President Asif Ali Zardari. (ANI)