Tuesday March 28, 2023

No alternative

January 28, 2023

LAHORE: The government finally let the economy follow the natural course. The decision of letting the rupee determine its market price was taken after much delay. Other actions like increase in power and gas tariffs must follow sooner than later.

There was no other alternative as our economy was in a mess. This is no time for blame games. We should be prepared for more hardships for a long time. Had the government further delayed corrective action, the situation would have deteriorated further.

Economist Hafeez Pasha a week ago warned that if the deal with the International Monetary Fund (IMF) does not get through, inflation would shoot to 72 percent.

He also cautioned that even after dealing with the IMF, life for Pakistanis would be tougher as in that case inflation would still be 35 percent, the highest ever in our history. The tough measures are less evil than no measures at all.

It seems that Finance Minister Ishaq Dar misread the situation like Asad Umar did during the PTI era. His aspiration of dealing tough with the IMF backfired.

There will be a new wave of price hikes as a result of measures the government has taken and intends to take in the coming days. Common man would be furious.

The rich would not be impacted much. At the most, the rich could suffer lower sales, but they would have no worries about food and luxuries of life.

This time it would not be easier for the government to impose tough measures. The government probably realises the situation, which is the reason it is contemplating to announce austerity measures that include decreasing the salaries of government servants, taking back more than one plot allotted to the judges and government servants and curbing perks of the members of parliament.

Only time would tell which measure the government announces first. Would it be austerity measures or the increased gas and power tariff?

Governments usually increase petroleum product rates, power and gas tariff, and people do accept these measures after some protests. Increasing indirect taxes or even direct taxes are also accepted with a pinch of salt by the businessmen. They recover indirect taxes from the consumers, but have to bear the income tax.

We all know that inflation and price hikes always impact the poor, but the economic turmoil we faced in the last four and a half years, particularly in the last 10 months, has eroded the capacity of even the middle class to balance their monthly budgets.

Successive governments did increase the minimum wage regularly, but the increase was always lower than inflation in the country. The government servants on the other hand were granted regular increases most of the times much above the inflation in the country.

Thus, they can cope with the price hikes. The government servants invariably have other means of income as well so most of them live comfortably and never realise the misery the poor live in.

If the proposed austerity measures are announced, it will be the first time in our history that there would be a cut in the salaries of government servants.

All other austerity measures aimed at reducing the income or government provided assets would be strongly resisted in Pakistan, as such things have never happened in the past.