Thursday December 07, 2023

Political or economic failure?

December 07, 2022

LAHORE: Economic bankruptcy is the consequence of political bankruptcy in Pakistan. Nation is paying a heavy price for the selfish and incompetent political leadership.

They do not respect law and pay taxes that in most cases are less than their daily expenses. Most do not pay any tax. Moral legitimacy of the tax collectors gets low if the ruling elite and legislatures that impose tax do not pay taxes.

Tax collection remains low because the elite and political forces do not want to pay taxes. Economic meltdown has already started and is accelerating with every passing day.

The social meltdown is likely to accelerate as rising disparities, injustices and high unemployment are fodder for social unrest.

Political leaders have major assets abroad. Morally there should be no representation in public office without tax compliance. Tax evading culture flourishes in Pakistan because the defaulters do not go to jails which is a norm in developed economies.

The country is passing through its gravest economic crisis perhaps more severe than 1971 when Pakistan was dismembered. There is a generalised breakdown of economic order.

Economy is in a deep recession that is accompanied by high inflation, high unemployment and sharp increase in poverty. These factors are worsening the law and order situation.

Unemployment is not the only worry, the tendency of the employers to withhold salaries for months keeps workers on their toes.

It looks like inflation has come to stay for a long time in Pakistan. Continued inflation would sharply erode the value of currency that might lead to triple digit inflation.

It has never happened before in Pakistan. Let us hope that it does not happen now. If it happens our society may not be able to bear the consequences. Food that is still out of reach of even those living above the poverty line would become a relic for majority of the population in triple digit inflation.

It is regrettable that politicians (both in government and in opposition) do not realise the gravity of the situation. There is no way out but to reduce the government expenditure (instead of increasing the salaries and perks of ministers as Punjab Assembly did on Monday).

There is a dire need to raise revenues by taking measures advised by the global institutions. Instead of increasing tax rates the government should explore new avenues of revenue collection like property tax, capital gain tax and agriculture income tax.

Global experience tells us that growth occurs when there is good governance, good economic policies, good institutions, good macroeconomic management and good luck. Unfortunately all these parameters including good luck are declining in Pakistan.

Inclusive growth would come through strong institutions. The nature of growth during the past 75 years has been exclusively benefiting 2 percent of the population.

This is the reason that poverty is not reduced in Pakistan even during very high growth periods. The economic planners of the country must formulate viable policies for small farmers, SMEs and cottage industries to ensure equitable growth.

To stop the country from total bankruptcy, leading economists have pleaded with the government to improve governance, strengthen institutions, reduce expenses and increase revenue through fair taxation. Or be prepared for a hard landing that would create an unbearable turmoil even for the rich.