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Indian Express
2 hours ago
- Business
- Indian Express
For IMF and World Bank, on Pakistan, a query
As tensions between India and Pakistan escalated, attention moved to the ways in which multilateral agencies (such as the IMF) wanted to be economic saviours for a near rogue nation — this, despite warnings that good money might actually be chasing bad money in a vicious loop. With the World Bank reiterating that it will provide $20 billion over the next 10 years to Pakistan, followed by the IMF's largesse to Islamabad, these multilateral agencies need to introspect about the need and justification for such aid. In fact, the track record of these Bretton Woods twins, which came into being after the Great Depression of the 1930s and World War II, in truly helping countries weather economic storms and meet developmental goals remains somewhat questionable. Our neighbour's current borrowings from the IMF stand at close to $8.5 billion (Special Drawing Rights of $6.3 billion) — around 35 per cent of this has been in recent years. There is now a real risk of the fresh borrowings from the World Bank (or at least a part of it) being used to repay the existing debt — this is similar to many Ponzi schemes. The beauty of a Ponzi scheme lies in its being too good to be true when the going is smooth. In principle, the IMF's Extended Fund Facility (EFF) provides financial assistance to countries facing serious medium-term balance of payments problems — it helps them address and implement structural reforms. The World Bank's lending targets seemingly philanthropic causes — from education and child nutrition to climate resilience. Inter alia, the surveillance and monitoring mechanism devised by the benevolent lenders, who need to account for and explain the spending of each dollar to wider stakeholders globally, needs to be in lockstep. However, the data supplied by the countries receiving such assistance rarely undergoes rigorous scrutiny — either at these hallowed agencies or through credible third parties. This undermines transparency. Pakistan's FCF (Federal Consolidated Fund) maintained with the country's State Bank, is, at face value, akin to any such fund held by federal governments in most parts of the world. Established under Article 78(1) of Pakistan's constitution, the fund is defined by its preamble as all revenues received by the federal government, all loans raised by that government, and all money received by it for the repayment of any loan. However, under Article 82 of Pakistan's constitution, the lower house of the country's parliament can only discuss the FCF — it has no voting rights. In contrast, India mandates that withdrawals from the Consolidated Fund of India should have parliamentary approval — this ensures transparency and accountability, apart from due diligence through an independent CAG audit. The lack of transparency in Pakistan raises larger questions on the end usage of the funds and the IMF/WB's willingness to walk the extra mile as prudent lenders. The issue, however, moves beyond transparency and accountability when seen from a governance perspective. In FY 2024-25, Pakistan allocated nearly $10 billion for defence spending, marking an 18 per cent jump over the previous year. Despite a weak economy, the country features regularly among the top arms-importing countries year after year. Ironically, while its per capita income has fallen ($1,459 in 2023 from $1,653 in 2018, according to the IMF), Pakistan's per capita defence spending stands at a whopping $41 in 2024. (In case of India, it is $60 while its defence budget was more than $86 billion in 2024 as per SIPRI data). To cut a long story short, the question is whether the loans (or grants) provided by these agencies are helping Pakistan, explicitly or implicitly, in spending disproportionately large amounts on defence procurements that ensure the nourishment of an overarching military regime, and strengthen its nefarious connection with corruption — the average citizen is a sufferer. The withdrawal of excess funds for defence could be camouflaged from the Consolidated Fund in the guise of ticking the box of some worthy cause (because the fund has little oversight from democratic mechanisms). Given the state of Pakistan's economy, World Bank data showing that defence spending is 3.5 per cent of the country's GDP look like fudging of the balance sheet. Even as India lodges strong protests over the end use of such aid, with the very real possibility of the misuse of debt financing as funds for cross-border terrorism, one is reminded of Pakistan being given a clean chit by the FATF in 2022 — this facilitated its transition out of the 'grey list'. Oddly enough, the FATF had then emphasised that Pakistan was taken off the list in the wake of Islamabad's 'high-level political commitment' to reform its existing monitoring mechanism. The FATF needs to heed India's warnings — cautioning the world to ensure that Pakistan must continue to take 'credible, verifiable and irreversible' action against terrorism. It could use this warning as a roadmap in alignment with the protocols of the Asia Pacific Group on Money Laundering, of which Pakistan is a member. Two issues need specific attention. First, democratic nations need to shed the moral dilemma they have in removing restraints against a nation that pledged to eat bread made of grass in order to become a full nuclear state, while also diverting funds to run a deep state-sponsored proxy war. Second, the proliferation of unrestricted economic terrorism is a matter of grave concern. Pakistan could be using the assistance provided by these agencies to create an Iraq-like situation. In other words, there is an urgent need for strict collaborative international supervision of its stockpiles as clandestine nuclear black markets thrive globally, posing a risk to world peace and security. The threats have multiplied with the elevation of Asim Munir as Field Marshal — signalling the increased probability of the beleaguered nation going back to military dictatorship. A word of caution for those who grossly fail to read between the lines dictating India's new normal: The honour of the country is no longer subjugated by the terms of trade. The writer is member, 16th Finance Commission and group chief economic advisor, State Bank of India. Views are personal
Indian Express
2 hours ago
- Business
- Indian Express
New data raises concerns over India as an investment destination. Trade pacts can offer a solution
In 2024-25, foreign direct investment (gross) into India stood at $81 billion. But net FDI — essentially the difference between direct investment to and that by India — fell to just $353 million, down from $10.1 billion in the previous year. The reasons for this stunning collapse can be traced to an increase in investments by Indian firms abroad and greater repatriation/disinvestment by foreign firms from the country. Coming at a time of subdued domestic private investments, and when the country is trying to emerge as an attractive destination for firms moving operations out of China and integrate itself to a greater extent in global supply chains, this fall raises questions. Are both domestic and foreign firms finding more attractive investment opportunities in jurisdictions other than India? Do other countries offer a more favourable risk-return ratio? This deserves closer attention. The finance ministry has taken note of this trend and voiced its concern. In its most recent monthly economic review, the ministry says that increasing investment by Indian firms abroad 'even as uncertainty reigned in the world, warrants attention, especially given their cautious attitude towards domestic investment'. And while it also notes that gross FDI inflows have 'remained broadly stable', not only are flows lower than in 2021-22, but over the past few years, FDI (net inflows as a percentage of GDP) has remained well below recent highs as per data from the World Bank. Surprisingly, though, the RBI appears to be more sanguine about these trends. In its monthly bulletin, the Bank says that the moderation in net FDI, which reflects a rise in net outward FDI and repatriation FDI, 'is a sign of a mature market where foreign investors can enter and exit smoothly, which reflects positively on the Indian economy'. Compared to India, UBS says that the 'ASEAN 6's FDI dynamics are robust' based on the first three quarters of 2024, and McKinsey has recently noted that most Southeast Asian economies are 'seeing higher FDI in the fourth quarter' than in previous quarters. As these countries are India's competitors in the China+1 play, these trends call for policy intervention at multiple levels to address the issues/impediments that are holding back investments from both domestic and foreign firms. The near-term outlook for investments remains muddied as both firms and households face uncertainty due to US President Donald Trump's tariffs . The finance ministry's monthly review also notes that private sector capex 'could lag behind, with firms adopting a more cautious stance amid global uncertainty'. However, a successful conclusion of the ongoing trade talks with the US and the EU could have a positive impact on investments and exports. After all, investment is more likely to flow to regions with broader and deeper trade agreements. The finance ministry also notes that 'a successful US-India trade agreement could flip current headwinds into tailwinds, opening up new market access and energising exports'. The government must press ahead with these trade deals.
Business Recorder
3 hours ago
- Business
- Business Recorder
Ahsan vows to deepen cooperation with World Bank
ISLAMABAD: Federal Minister for Planning, Development and Special Initiatives Ahsan Iqbal has reaffirmed Pakistan's commitment to deepening cooperation with the World Bank in pursuit of a resilient, inclusive, and future-ready Pakistan. He was talking to the newly appointed Country Director of the World Bank Bolorma Amgaabazar, who called on him in Islamabad on Wednesday. The outgoing Country Director, Najy Benhassine, also participated in the meeting. Welcoming Amgaa-bazar, Minister Ahsan Iqbal appreciated the World Bank's continued partnership and acknowledged Benhass-ine's instrumental role in deepening development cooperation during his tenure. He expressed confidence that this positive trajectory will continue under Amgaabazar's leadership, especially under the evolving priorities set forth in Pakistan's long-term development road-map. Minister Iqbal emphasised that the government has launched the URAAN Pakistan initiative — a comprehensive and future-oriented development framework designed to position Pakistan as a $3 trillion economy by 2047. He noted that the initiative is rooted in five strategic pillars, known as the 5Es: Exports, E-Pakistan, Environment and Climate Resilience, Energy and Infrastructure, and Equity, Ethics and Empowerment. The initiative is focused on smart governance, inclusive growth, and public sector transformation. 'In today's fast-changing global context, planning must be intelligent and adaptive,' said the Minister. 'URAAN Pakistan is about creating hope, harnessing innovation, and enabling long-term stability through scenario-based planning and institutional reform.' Copyright Business Recorder, 2025
Hans India
3 hours ago
- Politics
- Hans India
India must persist with Indus Treaty decision and other pressure tactics
One upshot of the Pahalgam terror attack was the weaponisation of water, specifically of the Indus Waters Treaty, which India put in abeyance. In his multiple statements after India's precise strikes on Pakistan terror camps and then on their air bases, Prime Minister Narendra Modi has made it clear that India is in no mood to go soft on weaponisation. The effects are already visible. As he said on Tuesday, 'All we've done is keep it under abeyance, and still, Pakistan is sweating. We've opened a few dam gates and started cleaning. We are removing the waste and debris. And even this has left them in panic.' But it was not a kneejerk reaction on India's part. At a recent standing committee meeting for external affairs, Foreign Secretary Vikram Misri told MPs that this is a plan that has been in the works. Several government organs, including the Ministries of Jal Shakti and External Affairs, worked together to weaponise water. A top source in the government told a news channel that the decision on IWT 'is a surgical strike in perpetuity because it hits Pakistan where it hurts the most.' The strike is the result of a whole-of-government approach. The IWT, brokered in 1960 with the support of the World Bank, allocated the waters of six rivers between India and Pakistan. The idea was signed, in the words of its preamble, 'in a spirit of goodwill and friendship.' India retained control over the three eastern rivers—Ravi, Beas, and Sutlej—while Pakistan was granted rights over the western rivers—Indus, Jhelum, and Chenab. India's choice to honour the treaty for over six decades, even during wars and terror attacks, was driven by its commitment to peace and international obligations. However, Pakistan's consistent disregard for the spirit of the treaty and its continued use of terror as a state policy eroded the foundation of goodwill on which the IWT was built; the erosion has been happening for at least 45 years. Islamabad first aided, armed, and abetted Khalistani terrorists in Punjab. Since the 1980s, it has been supporting, training, and arming jihadists to attack Kashmir and other parts of India. Pakistan's reaction to India's recent actions on IWT underscores how reliant it is on these waters. The mere suggestion of India reasserting its rights under the treaty has caused visible distress. For years, Pakistan has taken India's generosity for granted. The shift in New Delhi's stance represents a broader recalibration of policy—one that recognises the strategic importance of water not just as a natural resource, but a potent geopolitical tool. Moving forward, India must maintain and escalate pressure through all channels available—diplomatic, economic, and political. Suspension of the IWT is not just about water; it is a signal to Pakistan and the global community that India will not hesitate to defend its sovereignty and citizens. This multifaceted approach reflects a government that is willing to use every lever at its disposal in a coordinated and calculated manner. The Pahalgam attack may have been the trigger, but the Indian response is much more than a retaliation—it looks like a long-term strategy aimed at reshaping regional dynamics in favour of peace through strength. The Modi government, and the following regimes, must ensure that there is no let up in this strategy.
Business Recorder
3 hours ago
- Business
- Business Recorder
Tariff reforms
EDITORIAL: Reports suggest that the policy of providing protection against imports to industry has failed as it has neither improved industrial efficiency nor has it increased revenue collection appreciably. And while international donor agencies impose a standard normal condition notably to eliminate/reduce taxes on imports as an integral component of globalisation, erstwhile fully supported by their major donors, yet this policy has done considerable damage to the economies of debtor nations. With globalisation under serious threat as the Trump administration rhetorically supports fair instead of free trade, a cry that was previously only echoed by third world developing countries, there is a slow but inexorable shift in the international world order. What is significant however is that while the world is grappling with the US tariffs, though they remain suspended subject to renegotiations, yet donor agencies have yet to consider a policy revision based on the emerging new world order. Pakistan as a case in point, currently under a very harsh upfront International Monetary Fund (IMF) programme, has agreed to slash import tariffs that would make industrial output uncompetitive — be it for exports or for local consumption. To add insult to injury the government's other tariff regime including abolishing protective duty on imports as well as paying a 1 percent minimum turnover tax irrespective of whether the unit experienced profits or loss are further choking domestic output. This of course precludes the fact that other input costs are much higher in Pakistan relative to regional competitors (electricity, transport, gas as well as the discount rate which even at 11 percent is higher than what is prevalent in all regional countries), which makes our products uncompetitive in the international market as well as in the local market given the thousands of miles of porous borders with India and Afghanistan difficult to police and therefore smuggling remains an issue though it has been dealt with at a few check-posts. It is relevant to note that the large scale manufacturing sector has been registering negative growth for the past three years and while credit to the private sector increased substantially this fiscal year yet this was in all likelihood earmarked for the stock market as opposed to the industrial sector. This view is strengthened by the fact that unemployment has risen to an all-time high and there is evidence that more and more Pakistanis are being pushed under the poverty level with the World Bank maintaining that in the year past 1.9 million were pushed below the poverty line. The Staff-Level Agreement report on the first review released on 17 May 2025 stipulated that: 'The new National Tariff Policy (FY25–30) should substantially streamline and reduce tariffs (customs and regulatory duties) and reduce nontariff barriers and move away from the regime of special duties applied to imports for particular industries. Trade barriers are particularly extensive in the automotive sector, and the next iteration of the automobile policy (covering FY26–31), on which consultations are still ongoing, should reduce tariffs and preferential support for local production. Ahead of this, the authorities will remove the existing ban on commercial imports of used vehicles (new end-July 2025 Structural Benchmark for submission of legislation). Where contractual provisions allow, ineffective incentives for Special Economic Zones (SEZs), Export Processing Zones (EPZs), Special Technology Zones (STZs) and any other industrial zone or park should be phased out (end-June 2025 SB and new end-December 2025 SB for comprehensive implementation plans for SEZ/EPZ and STZ/other zones, respectively) and no new special zones should be created.' The economic reason behind these conditions were highlighted in the documents uploaded on the Fund website on 11 September 2024: 'The tax system has been extensively used to provide non-transparent support through exemptions for privileged sectors like real estate, agriculture, manufacturing, and energy, as well as, through the proliferation of Special Economic Zones (SEZs). The government's intervention in price setting, including for agricultural commodities, fuel products, power, and gas (biannual), combined with high tariff and non-tariff protection tilted the playing field in favor of selected groups or sectors. Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually 'infant') industries.' One can of course support the government's decision to end the non-filer category as that was legally and, from the perspective of fairness to the tax payers, simply not tenable. However, one can only hope that the revenue generated from this source will not be by raising taxes from existing tax payers, as they are already over-burdened, but from ensuring implementation of pledged taxes on the sectors notorious for non-filing example the real estate sector, the traders, etc. There is, therefore, the need for the government to encourage an industrial base focused on exports (rather than merely exporting the surplus) and at the same time one cannot indefinitely support incentives at the taxpayers' expense, who are increasingly being pushed below the poverty line. Copyright Business Recorder, 2025
