While the persistently high inflation rate has become the primary concern of the vast majority of the citizens, the risk of foreign debt default has turned into a pivotal issue in public policy.
And the surge in the cost of living and inequality is prompting an increasing number of development and political economists as well as financial experts to shift their focus on the need for an alternative economic model based on the country’s priorities.
Former State Bank governor Dr Reza Baqar forcefully recommends proactive programmes to reduce wealth inequality in a sustainable manner and that need to be front and centre of our priorities for our progressive and peaceful future.
He notes that ”rising international prices of energy and commodities are raising inflation, squeezing further the household budgets of the less well-off and driving the wedge of wealth disparity deeper and deeper in the social fabric. The importance of policies to reduce wealth inequality cannot be overemphasised.”
Some analysts believe that inflation can only be controlled when economies move into recession
Under an understanding reached with International Monetary Fund (IMF) on June 21, the government has agreed to impose a 1 per cent poverty tax on firms and individuals earning Rs150 million, 2pc on those earning over Rs200m, 3pc on over Rs2.5m and 4pc on over Rs300m and above. In the original budget, the PML-N government had proposed a poverty tax on those earning Rs300m and above.
The government has also agreed with the IMF to a petroleum levy of Rs5 each month up to Rs50 from July 1 and revised upwards tax collection target by Rs422 billion for the next fiscal year.
The projections of inflation rates vary with the Ministry of Finance estimating it at 11.5pc while the Federal Board of Revenue (FBR) puts it at 12.8pc. As per revised FBR estimates, higher inflation will fetch much more tax revenues than originally estimated.
Islamabad is accepting stiff terms of the deal to avoid a foreign debt default. “Economic management that relied on borrowings allowed the country’s ruling elite to avoid and postpone much-needed structural reforms, including serious tax reforms that could have placed the economy on a viable path,” wrote Dr Maliha Lodhi recently in an article titled ‘Is Pakistan ungovernable?’ Critics also say that while primary beneficiaries of foreign loans are the rent-seekers, the debt is repaid by ordinary taxpayers’ money.
The external environment also remains problematic for sustainable and inclusive economic growth that could reduce poverty and inequality. As the international market perception is affected, the hike in interest rates by major central banks to subdue inflation carries the risk of an economic slowdown/recession. Some analysts believe that inflation can only be controlled when economies move into recession.
International trust and cooperation are in desperately short supply, but it is the only way out of any of these intertwined crises, says an opinion piece in The New York Times titled “We must work together or fall.” The writer was referring particularly to the impact of the Ukraine war triggered surge in food and energy prices.
In Pakistan too, political polarisation is contributing to the country’s economic woes. A regime change replacing PTI by PDM is no remedy, says Haroon Rashid Siddiqi, a retired professional based in Canada. He is of the firm view that nothing can work unless the model of the economy is aligned with the country’s priorities.
Competition Commission of Pakistan (CCP) Chairperson Rahat Kaunain Hassan reminds us that cartels must be busted with strict enforcement of competition law for fair prices to go down by 25-30pc.
Addressing the Karachi Chamber of Commerce and Industry, she informed the audience that since its inception in 2007, CCP had imposed penalties of around Rs70bn for different violations of the Competition Act by various sectors. But the recovery remained paltry because most of the undertakings had challenged the CCP’s orders in higher courts.
She said the real effectiveness of CCP’s orders will be felt once the judicial review process is complete, particularly in the cartel cases that call for prioritisation for the harm incurred to the economy. Without strict enforcement of the law, she argued, the competition culture cannot prevail.
Taking a more radical view of things, political economist and head of the Institute of Business Administration S. Akbar Zaidi emphasizes: “Pakistan’s economy does not need more of the same, yet another IMF rescue package, the same neoliberal economics, the same rulers; it needs disruption, not business as usual, a new path, radical alternatives, different politics.”
Mr Zaidi expects that the economy is going to continue to be faced with multiple crises unless reforms which redistribute resources and relocate priorities are made. What matters to the people is inflation and the solution they (policymakers) have to this problem is more handouts, more ‘relief’, and more charity.
The role of the legislatures in the budget-making process is rather limited and ineffective, complains Pakistan Institute of Legislative Development and Transparency President Ahmad Bilal Mehboob. He says there can’t be a greater affront to a sovereign parliament than undoing its passed budget by the executive. He notes that Pakistan is one of the, perhaps, three countries in the world where such a provision exists.
“We all know that the real power in the country does not rest with the masses,” says a governance and development analyst Altaf Hussain Khosa. Essentially, democracy emerges as a system where it becomes a duty of all citizens to actively participate in public and state affairs, says a political economist.
For our national well-being, Mr Khosa suggests that we need to support a genuine political leadership whose primary focus is on regional hegemony, powerful local government, equitable distribution of prosperity among federating units and the formation of a strong and non-partisan accountability force.
Planning Minister Ahsan Iqbal laments that Pakistan has not paid attention to human resource development and the dream of economic development could not be fulfilled with an inadequate education level.
But a related issue here is that brain drain is simultaneously encouraged as home remittances are badly needed to manage trade deficit. Low value-added economic activities also do not offer enough decent career paths to talented professionals.
Published in Dawn, The Business and Finance Weekly, June 27th, 2022