Sunday January 16, 2022

Economic woes

December 06, 2021

With more details about a proposed mini-budget, it is becoming clear that it will hardly be people-friendly. It will have fiscal adjustments and expenditure cuts but not much to offer any relief to the citizens of this country. Adjustment and cuts are likely to be worth about Rs600 billion as the IMF has asked Pakistan to do. The IMF’s main concern has been some cooling down of the overheating economy, but this will also pour cold water on the aspirations of people who were expecting some lowering of inflation and improvement in livelihood opportunities. Adviser to the PM on Finance and Revenue Shaukat Tarin has also conceded that there are uncertainties in the market due to inflation and currency depreciation. He has also highlighted the interest rate hike as another cause of these uncertainties. Though the government has been trying to reassure the citizens of Pakistan by promising to take appropriate measures to improve the economy, these simply boil down to banning non-essential imports for the rest of this fiscal year. Just by announcing that external factors have caused the recent economic uncertainties, the fault lines will not disappear.

Government policies – or a lack thereof – and monetary decisions have played a crucial role in generating the current economic mess. It is true that market players also exploit the situation but ultimately it is the government’s responsibility to contain them. On one side, the government is preparing a mini-budget that will have a devastating impact on common citizens, and on the other side the adviser is seeking public patience for a couple of months. These promises of ‘a couple of months’ have been in circulation for the past 40 months. The government has been laggard in its own regulatory actions against banks that – according to the adviser – have to cool down inflation. As we have pointed out numerous times, some stability in the exchange rate is vital to end uncertainty in the market, and that the government has been unable to achieve for various reasons. The mini-budget that the government is about to impose is unlikely to put the economy on a growth path as both rural and urban populations are facing it tough just to sustain their families with bare essentials.

The mini-budget may promise yet another time that the financial difficulties of the people would subside in a few months, but if the past three years are any guide, these promises are unlikely to materialise with an unpopular mini-budget that will come in force at the behest of the same external forces that the adviser is blaming for economic uncertainties in the country. The 32 percent growth in income tax may be a good sign for the government but for tax-paying citizens it also reflects an increase in the amount they pay to the government without getting reciprocal relief. Similarly, growth in the construction industry may be encouraging for real-estate tycoons, but for common people who find it difficult even to pay rent for a couple of rooms, this real-estate ‘boom’ is no bonanza. Now with the withdrawal of Rs350 billion in tax exemption in the mini-budget, parliament will pass the bill that is detrimental to people’s wellbeing. The IMF has made it clear that a presidential ordinance will not do the trick, hence parliamentary approval that will set the economy on an even more uneven keel.