AMONG the works of some historians, one can find a crisis-centred view of large-scale transformation. The argument is that moments of great crises — natural calamities, wars and famine, and economic breakdown — often precede substantial changes in the way states operate and how societies progress.

In the midst of a major cost-of-living crisis in Pakistan, various economists have urged the current government to make the most of these adverse circumstances to induce long-standing corrections in the way the economy is governed. These include the removal of blunt, untargeted, and regressive consumer subsidies — such as the one on fuel, electricity, and gas prices; and the transfer of various rents and tariff-based protections offered to domestic industries, that have rendered much of Pakistan’s manufacturing economy uncompetitive on a global stage.

Alongside these familiar, expenditure-related steps, there is also advice aplenty on improving the revenue side of the equation, by rationalising the tax base, making some sectors pay their fair share, and reducing the disproportionate burden that falls on low and middle-income citizens by way of indirect taxes.

Perhaps the most salient advice circulating, and one that generates considerable consensus among policy researchers at least, is the need to change governmental regulation around land. This would involve some combination of increasing the quantum and coverage of property taxes on built properties in first- and second-tier cities to bring them closer in line to comparable cities across the world; a second intervention would be penalising the hoarding of vacant land (ie the use of empty plots as a store of wealth) through an annual tax; and a third one would be to increase tax rates such as CGT and stamp duty on the transaction of property to curtail speculative trade in plots and files. This can be done in tandem with increasing the assessment rates of property through the DC and FBR tables of valuation for provincial and federal government taxes respectively.

The next 18 months are looking bleak for every rural and urban household, except those in the top 5pc of the income and wealth distributions.

The change of regulations around land, and the expenditure reforms mentioned earlier, essentially target the overall structure of the macroeconomy. The notion behind this is that once these basic macroeconomic fundamentals are put in place, the country will be on a more sound footing to pursue growth, largely by way of improved capital flows to productive sectors and more exports. Right now, it’s clear that the country cannot afford the standard type of growth that we do get — i.e. that which is mostly consumption-driven.

Where, in my view, the conversation currently falls short though, is that this period of adjustment inflicts a great deal of pain on large swathes of the population. Higher energy prices first directly eat into stagnant incomes and then unleash second-order inflationary effects later in the year. Slowing down of the economy will also mean fewer jobs and greater unemployment. Combined with the commodity super-cycle, the next 18 months or so are looking very bleak for every rural and urban household, except perhaps those in the top five per cent of the income and wealth distributions.

Conventionally, it was thought that Pakistan’s large (anywhere between 40pc to 60pc of GDP) informal economy acts as a suitable cushion during periods of high inflation and stagnant economic activity. But vulnerability surveys along with recent Labour Force Survey data shows that this modicum of protection is no longer sufficient. The country needs a far more categorical and purposeful approach towards protecting its citizens from unfettered inflation.

There are two such things that the current government can do: As in the case of the previous, PTI-led government, a moment of crisis — the Covid-19 pandemic — opened up for expanded social protection coverage through the Ehsaas Emergency Cash Transfer programme. In 2020, the outlay for direct cash transfers increased significantly to around 3.5pc of total GDP to mitigate against the livelihood fallout of the virus itself. It also opened up the possibility of using digital technologies to monitor and expedite cash transfers, and create better metrics for the inclusion of vulnerable populations.

This is a programme that every successive government has built on, and the current one should look to expand it in more fruitful ways. There are encouraging signs that an income-support system that tries to capture populations based on income/consumption rather than asset-scores (which tend to exclude the urban poor who are likely to suffer due to income shocks) is in the works. The proposed coverage would be around 70 million low-income citizens, or roughly one-third of the total population. However, given the scale of the cost of living crisis facing the country, this figure may have to go up to cover lower-middle income households as well.

The second area that requires urgent work is the development of a viable and effective public distribution system for basic commodities. Conventional economists tend to prefer cash transfers because they can be targeted better and are more efficient, plus they allow for citizens to spend on their own priorities. This argument is generally sound.

However, in a context where inflation drives up prices on a weekly basis, and shortages plague households across the country, creating a mechanism that allows for subsidised and assured access to food-related essentials is going to be key. The last attempt at the Ehsaas Rashan programme was convoluted, given that it attempted to balance efficiency concerns with social protection ones and took too long to get off the ground. Going forward, it may be worth evaluating alternative designs that are linked with the existing BISP database and payment mechanism to identify the right households for targeted provision of goods. A moment of crisis opens up a moment to think creatively and implement solutions for long-standing problems; it is reasonable to expect that the current one should allow for the same.

The writer teaches politics and sociology at Lums.
Twitter:@umairjav

Published in Dawn, June 13th, 2022