Politics of austerity

Published June 11, 2019

AT the start of a heady series of confrontations, and with the unveiling of a dismal economic picture, Prime Minister Imran Khan has called for austerity.

He also appealed to the public in a televised address yesterday to avail the option provided by the amnesty scheme.

The two appeals are linked, of course, since the amnesty scheme is in large measure also a revenue-generating exercise designed to help the government meet its hefty revenue target of Rs5.5tr — around 35pc higher than the current year’s collection.

The Economic Survey, meanwhile, has painted a dismal picture of the economy, with large sectors posting negative growth and next year’s target for total GDP growth being a mere 4pc.

Of course, most projections and expectations are that even this modest target will prove challenging for the government to achieve.

There is now little doubt that the government must brace itself for an extremely difficult year ahead.

The public and the business community will be called upon to make large sacrifices as they contend with higher inflation and unemployment, coupled with a rain of taxes and an aggressive drive to net more taxpayers, especially from the country’s largely undocumented small- and medium-enterprise sector and services.

All governments that have embarked upon this course in the past have found their reservoir of goodwill evaporate quickly once the full brunt of the adjustment begins to bite.

To top it off, the government is aiming to accede to an IMF programme soon, which means there will have to be strong oversight. Missing targets or even seeking their relaxation midcourse will hardly be acceptable.

Given the extremely challenging task opening up before the government, it is surprising to see a series of political confrontations also starting at precisely the same time.

Just when the government is about to undertake one of the most intense economic adjustments in our history, it finds itself embroiled in a clash of wills with the political opposition, the lawyer fraternity, and the business community of the country.

Going forward, traders are also likely to express their anger if the government gets too aggressive in its attempts to get them to register themselves with the tax authorities (similar exercises in the past have always failed).

We can debate the merits of the arguments that are made to explain why these confrontations are necessary.

We can also debate the manner in which austerity should be pursued — whether frontloaded to attain stabilisation quickly, or dragged out over a number of years to dilute its adverse impact on the people.

What is beyond doubt, however, is that enforcing austerity measures will test the limits of the government’s ability to manage divergent political priorities.

This is a bad time for it to be on a war footing with so many power centres around the country. Caution is advised.

Published in Dawn, June 11th, 2019

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