Welcome on Board

This blog is for students, managers and those lay people who are interested to contribute to, comment on or simply share their workplace problems and are keen to learn about issues relating to public finance, corporate finance and macro-economic management affecting their lives.

Friday, November 5, 2010

To keep IMF out, go for creative financing.....

As expected, the Government of Pakistan has given in under IMF pressure and has agreed to impose the Reformed General Sales Tax (RGST) before November 14, 2010, in a meeting with the International Monetary Fund (IMF). The talks focused on the RGST as well as Income tax. The government also agreed to impose a 10 per cent surcharge on income tax. However, no deadline was suggested for the imposition. Additionally, the government decided to withdraw subsidy on machinery, heavy machinery and tractors. Subsidy will also be withdrawn from the textile and leather industries.
The government is suffering from deficit of all kinds; fiscal deficit, revenue deficit, budgetary deficit and now the worst of all is deficit of ideas. It is in the economy of imagination that Pakistani government has gone bankrupt. It needs creative ideas to cope with the problem of liquidity and credibility. It needs to go for Creative Financing. But alas! It is not running its own business, it is (mis)managing others’ money and it has run out of creativity which, in fact, is key when you own your own business. If you are a small company you might be the owner, marketing department, sales, accountant, cashier and even the janitor all rolled into one. And each new challenge requires a creative new solution. Even if you are larger you probably still have a hand in everything that goes on in the company.
The government should create fiscal space in the same manner a business owner would do when required. There are basically two ways you can approach the problem of creatively financing a business. You can try to bring in money from an outside resource to help you meet expenses, or you can try to cut expenses in the first place. Fortunately, there are plenty of creative businesses financing techniques one can use for both. If cutting costs wasn't enough, it may be to time to look for some creative business financing from outside sources. Unfortunately the government has exhausted one option seeking financing from friends and family. Friends like Saudi Arabia and USA would ask for their pound of flesh if you keep on asking for their assistance. Family, the citizens, is already fatigued and may have no faith in the economic acumen of the managers. Moreover, it can also be dangerous for the relationship. Unlike a typical creditor, you will need to spend time with this lender. They may also feel that because they gave you money they have a right to interfere with how you do business.
The best form of creative financing would be to get the rich pay the taxes. This could be done through persuasion or coercion. A government can legitimately make use of all the resources and state power to meet its legitimate objectives. But those who are at the helm, if they do not pay taxes and evade and avoid them, will it be ethical for them to ask others for taxes?


  1. I like your article and your initiative. To throw IMF out Pakistan need to take a debt moratorium from Int’l bankers and borrow from China/Saudia/Muslim countries to pay it off. Improve regional trade and take stay order on selling of gold reserve at Reko diq.

    Webster Tarpley has a suggestion which can be of great use to us. http://vimeo.com/11982726

  2. 1. Creative financing would revolve around identification of assets inside country (minerals etc,).
    2. Mainstreaming of black economy another creative measure should be done to retire debt.
    3. Taxing of NATO supplies through Pakistan should be considered as US / EU do not buy our textile products on the basis of friendship, rather subject them to unnecessary inspection mechanism.
    4. Pakistan is in need of international assistance now (post flood situation) whereas neither any progress on ROZs or additional quota to Pakistan in EU alloted on immediate basis......................So RISE and demand your rights, tax NATO supplies as FRIENDSHIP should not harm our economic interests. If they are RULE based, act like one with them.