There and back again!!

13/07/2022

Madness as defined by Einstein is doing the same thing over and over again and expecting a different result. For the past three decades, this definition has accurately described Pakistan’s economic policy management by its planners as it has undergone the same cycles in the hopes that the country’s fortunes will be reversed, only to end up back from where it started. The entire cycle with a new government coming into power, be it military dictatorship or a puppet civil setup, blaming the country’s economic woes on the policies of the previous government based upon heavy domestic and international borrowing and generous subsidies to the ruling elite and privileged classes of the country. The new set up in its turn justifies going to the same lenders once again to not only repay the debts of the previous government but to also unlock a new round of funding to implement its own economic plan for growth, job creation and fiscal control. After agreeing to the punishing terms of international lenders specifically the International Monetary Fund, it then continues to follow same economic policies as of its predecessors of doling out large scale subsidies to certain sections of the society or engaging in large infrastructure projects without any solid plan as to how return on these investments will be generated. Then after a 3 to 4 year or at most a 5 year term, if the fates are generous, the government of the day comes to an end due to political instability or military intervention and the economy is right back from where it started with even higher foreign debt and fiscal imbalance necessitating another bailout package for the incoming ruling setup. And each repetition of this cycle results in even greater hardship for the 250 million people of this country. Indeed a mad man can only bang his head so many times on a wall without splattering his brains out.

The recent budget by the coalition government of Prime Minister Shehbaz Sharif is an example of the same cycle playing out once again. Without being misguided by the buzz words like “difficult decisions” , “tough budget”, “balancing act” etc, an analysis of the budget should focus on how it looks after the interests of six main sections of our society namely International Financial Institutions (IFIs), civil military bureaucracy, Industrialists and agricultural landlords, daily wagers, small and medium enterprises and salaried class.

Interests of first of these, the IFIs are well protected under their lending agreements. Institutions like IMF and WB ensure that the Pakistani government will be able to pay back their loans with interest through increased taxation, better macroeconomic and structural policies and tighter fiscal management and control even if it requires cutting down on development expenditure. Hence the effect of the so called “difficult decisions” is of no concern to these IFIs as well as on some other players like the Independent Power Producers (IPPs) to whom GoP is bound to pay a guaranteed Return on investment fixed not in local currency but in US dollars.

Second comes the civil military bureaucracy which broadly speaking also includes the legislature and judiciary. No matter what the economic circumstances of the country, this section always ensures increase in their budgetary allocations and increase in their benefits through pay increase and ever increasing benefits like free fuel, electricity, domestic manpower as well as free/subsidized housing, residential and commercial plots and farmlands besides reemployment opportunities after retirement or pensions which are higher than the existing corporate salaries as in the case of judiciary. On top of this a large number of them enjoy many fringe benefits that aren’t even accounted for in the budget. The defense budget has also been increased by 11.5%. Supplementary grants which are taken on top of the allocated defence budget were 110 billion rupees last year and they are sure to be somewhere around this figure or higher. Furthermore this figure does not include the expenses on procurement of new weapons and on running the strategic defence programs neither does it include the payments of pensions to retired armed forces personnel which is covered from civilian budget allocations towards pensions. Hence this segment is little effected by the “difficult decisions”.

Next comes the third segment which are industrialists and agriculture landlords. In this case this category only refers to large scale industries like the country’s textile and sugar sector. This segment is provided generous subsidies in every budget in the form of subsided gas and electricity, tax rebates or exemptions. Agricultural sector is being only nominally taxed thanks to the powerful landowners. Even though the government has announced 700 billion in subsidies, more than 90% of this has been allocated to IPPs, textile and pharmaceutical sector whilst only 17 billion has been allocated for Utility Stores Corporation and 7 billion for PASSCO which have direct impact for the ordinary person.

As for the remaining three sections of our society, the small and medium enterprises, daily wagers and the salaried class that compromise the vast majority of this country’s population, it is here that the true talent of our economic managers is revealed. Taxes have been increased for this segment as even those earning 50,000 per month are now liable to pay taxes and tax slabs have also been changed to increase tax revenues from this segment. Fuel and electricity subsidies to SME have been withdrawn leading to increase in cost of doing business. Indirect taxation on these already suffering segments in the name of petroleum levy, sales tax, custom duty etc. to make up for the revenue shortfall of the government.

It is obvious that the “difficult decisions” as usual have been targeted at certain segments of the population at the cost of protecting the interests and benefits of certain other segments of the society.. Unless real difficult decisions are taken in the larger interest of the country, it is highly unlikely that our economic situation would change for the better.