Much worse to come

Updated April 08, 2019

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The writer is a Karachi-based political economist.
The writer is a Karachi-based political economist.

ALL those who had hoped that Pakistan’s economy may have finally hit rock-bottom and may just have turned a corner, and that the wreck created by the finance minister and his team might have stabilised, are in for a rude shock. We are still at the beginning of the huge damage relentlessly being done to Pakistan’s economy by an irresponsible and incompetent management and leadership which has destroyed the economy over the last eight months.

It certainly did not add to anyone’s confidence when the finance minister himself was recently reported to have said that “Pakistan may be going through an economic crisis”, or that we are “near bankruptcy”, a view shared by the adviser to the prime minister on commerce, textile, industry and production and investment who also said that the economy was in a “bad shape”. The governor of the State Bank, agreed, adding his sombre and dire statement about where we are today, warning about dismal prospects in the future, politely saying that growth will ‘moderate significantly”. However, be warned, things are about to get much worse.

Two things need to be pointed out. One, that while the current government did certainly inherit an economy which was desperately seeking reform, after eight months it can’t blame previous governments and has to take responsibility for its own mishandling. After two failed mini-budgets, some introspection is necessary. Second, a look at a few key indicators will only emphasise the point of how bad things have become.

With inflation at its highest in five-and-a-half years, we are only seeing the beginnings of a period of double-digit inflation. The rupee is losing value every other day, adding to this inflation, and will depreciate a great deal more, whether, or especially when, the government gives in to yet another IMF programme.

The rupee is losing value every other day, adding to inflation, and will depreciate a great deal more.

The fiscal deficit is about to hit more than six per cent of GDP, and even a cut in development expenditure will not stop this rot, as defence spending and interest payments continue to rise. Our exports, despite the 35pc devaluation, have barely budged, the circular debt continues to increase, interest rates are also going up making the cost of business even more uncompetitive. One can go on and show a vast array of statistics which unambiguously show that this government has ruined the economy. With the State Bank lowering GDP growth to an eight-year low of around 3.5pc, those begging for money (most of which has already been spent in one way or another) from the four friends we have left, need to think of better alternatives. And tax amnesty schemes are certainly no solution.

There is nothing which represents the complete disarray and disconnect in understanding and thinking about Pakistan’s social and economic issues by this government, and their attempted solution than the two announcements made recently. The first was made by the prime minister of Pakistan on March 28, followed by one made by his finance minister reported the next day.

Prime Minister Imran Khan announced “the biggest and the boldest” poverty alleviation programme of Pakistan called Ehsas, with a number of measures supposedly to address many of the country’s persistent economic problems. This, at a time, when poverty numbers have fallen and poverty has ceased to be Pakistan’s biggest problem, now replaced by huge and visible disparities in income and wealth.

The apparent determination and importance of these measures to the government, were emphasised by the prime minister’s announcement, that he would ask for a constitutional amendment to move Article 38(d) from the ‘Principles of Policy” section into the ‘Fundamental Rights’ section, making the “provision of food, clothing, housing, education and medical relief for citizens who cannot earn a livelihood due to infirmity, sickness or unemployment, a state responsibility”.

Undoubtedly, these are admirable intentions and a part of his Riasat-i-Madina project. But where the money for such grandiose schemes will come from, given the state of the economy, is a complete mystery. A far more robust taxation policy, taxing the very rich and transferring this money to those who deserve it, would address Pakistan’s growing inequality, and might allow social welfare spending as well, but the government fails at such structural measures of reform.

The very next day after the prime minister’s announcement, it was reported that the finance minister had stated that Pakistan was finally about to secure a bailout package from the IMF of between $6 billion and $12bn in late April or early May. These two statements represent a huge disconnect between what the prime minister envisages and how his finance minister thinks the economy ought to be managed.

There is a basic contradiction here between both these aims and positions, and both have diametrically opposite consequences. This should be fairly obvious to anyone, no matter how well intentioned, if they have even a miniscule understanding of how a country’s social and economic policy is managed, and what the consequences of an IMF programme will entail.

The anticipated IMF programme, which is almost a certainty now, is going to make things far worse for all Pakistanis, and especially for the working people already dealing with prospects of a marked economic slowdown and far higher prices. The IMF will further cut the miniscule development expenditure we have left, although defence spending will remain a matter of ‘national security’, hence, not to be touched.

The IMF brings about austerity, stabilisation and cuts the growth rate, it insists on devaluation, and will cause greater inflation by raising utility prices. The fundamental rights in the Constitution, regarding the “provision of food, clothing, housing, education and medical relief for citizens”, are inconsistent with any IMF programme. In fact, at the end of the anticipated IMF programme, we will add many more to the ranks of those who “cannot earn a livelihood due to infirmity, sickness or unemployment”. Perhaps it is best to remind ourselves, there was no IMF in the state of Madina.

The writer is a Karachi-based political economist.

Published in Dawn, April 8th, 2019