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Pakistan’s Coalition Government Remains Resiliant

Prime Minister Gilani and MQM

MQM, the political party that announced it would sit on opposition benches earlier this week announced today that it is returning to the government coalition following an agreement to defer economic reforms.

As we wrote last month, MQM’s move wasn’t a sign of a political ‘crisis’, but a natural part of coalition politics, especially in an emerging democracy where all parties are experimenting with strategies to maximize their influence.

It was notable, though rarely noted at the time, that even the PML-N – the largest opposition party – denied that the government was threatened. Unfortunately, this did not stop opportunistic headline writers from announcing the government’s imminent ‘collapse’ – predictions that a resilient government coalition continues to defy.

Meanwhile, Pakistan’s Prime Minister Yusuf Gilani announced that certain economic reforms would be deferred until consensus can be reached among the parties. While this has caused some concern among IMF economists, the decision must be considered in light of Pakistan’s political situation.

The largest opposition party, Pakistan Muslim League – Nawaz faction (PML-N), continues to be a vocal opponent to the reforms. If MQM and other smaller parties were to abandon the PPP in a vote of no confidence and a PML-N led coalition were to win off-year elections, the reforms would not only not pass, they would not even be taken up for consideration.

The fact that the PPP government has had to defer the proposed package of economic reforms demonstrates that the political will is simply not there to move forward with these changes at this time. That said, the PPP’s willingness to support the reforms until it threatened to upend the government demonstrates that they are serious about getting Pakistan’s tax-to-GDP ratio under control.

Pakistan is not unique in its populist (and pseudo-populist) opposition to measures intended to repair revenue gaps. People enjoy government services such as Pakistan’s subsidized fuel prices, but are not eager to part with the taxes necessary to fund them. We see the same disconnect here in the United States as Republicans and Democrats spar over how to pay for popular government programs without unpopular taxes and fees.

Unlike the United States, though, Pakistan does not enjoy the relative peace and prosperity that allows our own Congress to put off reforms. While the announcement that reforms will be deferred is a setback, it’s not a repudiation of the policy. Rather, it’s a acknowledgment that more needs to be done to bring Pakistan’s other parties on board. To this end, bringing the MQM back into the fold is the first step towards economic recovery.

New York Times' Problematic Pakistan Coverage: Politicians and the "Tax Gap"

Pakistan's Tax Gap

Getting people to pay their taxes is a problem as old as taxes themselves. Even Jesus caused controversy by having dinner with Zacchaeus the tax collector – a hated man in his community. So it should probably come as no real surprise that Pakistan, like all nations, has a sizeable tax gap – the difference between taxes owed and taxes paid.

New York Times reporter Sabrina Tavernise puts the blame squarely on the politicians, saying that the nation’s dysfunctional tax system is “mostly because the politicians who make the rules are also the country’s richest citizens, and are skilled at finding ways to exempt themselves.”

That is an incorrect characterization.

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