Monday August 15, 2022

Tough times ahead

June 25, 2022

LAHORE: The IMF deal and subsequent expected foreign inflows will save Pakistan from default but will not bring smiles on faces of men on the street who may get relief after a year, provided the government stays on its reformist agenda.

It is for the first time in our history that the ruling elite is not promising a moon to the electorate. It has taken some very tough decisions that no democratic government ever dared to make.

We are being told to come out of fantasy. The aim to gather more taxes from the rich is commendable. Let us see how this objective is attained.

Accumulation of wealth in few hands does indicate that lower strata of society have remained deprived of adequate share that allows them to live comfortably.

But proposed taxing of the rich would not protect the poor from some other necessary steps taken to reduce burden on the government.

Decisions like an increase in petrol rates would impact the entire society. But there was no other way. Government must peg the petroleum rates with the global prices of this imported fuel.

LNG rates have quadrupled and blank subsidy to the exporters would not be possible. Producing power from imported LNG would be very costly.

Moreover, LNG is not readily available in the market as the Europeans are buying it from Asian suppliers at very high rates as supplies from Russia have dried after sanctions.

Increase in power and gas rates is inevitable. All these measures would hurt the common men.

So, even by taxing the rich more and providing subsidies to the poor, the cost of living is going to be very high in the near future. Our economic conditions have reached a stage where subsidies and no taxes on the poor would hardly provide them the needed comfort.

The first goal of the state was to avoid default. Its second responsibility is to probe the factors that led us to the verge of default. It should avoid committing those mistakes to ensure that we do not have to face this situation again.

Austerity would only nominally resolve the issue. Taxing the people based on income and wealth might resolve the issue of resource crunch. The culture of public appeasing policies that have adverse impact on our resources must be reviewed.

The amount, if available must be spent on development projects that ensure future prosperity of the nation.

Luxurious lifestyle of politicians and bureaucrats must be curbed. The rich can show off their wealth, but must pay the state higher taxes for luxury.

State is operating on borrowed money. It must generate resources from the rich and tax dodgers. It has shown intention to do that. How far it succeeds in this endeavor is yet to be seen.

It needs nerves of steel to force the rich (who are highly influential as well) to part away from a fraction of their wealth. The common man will not benefit from this exercise. Improvement in their lives would come if the country embarked upon a sustainable growth path.

Investment would start pouring if the reforms are strengthened and not reversed. Till then tough times are ahead for the majority of the population.