Diminished spending power

Published April 3, 2024
The writer is an attorney teaching constitutional law and political philosophy
The writer is an attorney teaching constitutional law and political philosophy

IT happens twice a month. Every 15 days the government decides whether or not to tighten the noose around the necks of Pakistan’s masses. Last Sunday, the masses got unlucky as the government decided to jack up petrol prices by Rs9.66 ahead of the Eid holidays.

It is a tricky measure for the government — one that it says is based on price fluctuations in the global market — as it knows that this is an unpopular move. Meanwhile, the International Monetary Fund, which has long wanted the removal of subsidies on gas and electricity, among other items, in order to move towards market-based prices, has been dissatisfied with Pakistan’s efforts in this direction.

Even with things worsening for the public, the new government would have to do ‘better’ and will be held to a higher standard by the IMF and other international lending bodies. The conundrum this leaves for Prime Minister Shehbaz Sharif and his government to tackle is that by increasing fuel prices in a country where people are already suffering beneath the yoke of 20 per cent inflation it is likely to make even the most popular government unpopular.

It is a tragic situation, not least because it is unclear how the government intends to assist ordinary Pakistanis who have already given up the few luxuries they enjoyed and will soon not be able to afford even the basics. The timing could not have been worse. We are in the last week of the month of fasting and Eid is around the corner. The latest petrol bomb means that many will be unable to celebrate the festivities in the style that they normally did most years. Parents will struggle to provide their children with new clothes and other treats as this Eid casts a pall over a country, which has desperately been looking for some relief. The trend has been ongoing for some time now. Last Eid, news reports indicated that Eid-related spending had fallen by 40pc because inflation was so high. This number was cited as the lowest Eid spending in 10 years. It may be just as bad or worse this year.

It seems the government’s plan is to ask the IMF for more money. Previously, an emergency package issued by the IMF had saved the country from defaulting on its sovereign debt. According to media reports, Finance Minister Muhammad Aurangzeb is hopeful that the IMF will allow a long-term programme after the current $3 billion Stand-by Arrangement expires this month. Speaking at an event at the PSX last Friday, he said that the IMF was “receptive” to the idea of one, although the size of the next programme was still to be determined. Scheduled to depart for Washington in a couple of weeks, he was hopeful that a staff-level agreement could be concluded with the lender before the end of June.

It is a tragic situation, not least because it is unclear how the government intends to assist ordinary Pakistanis who have had to give up the few luxuries they enjoyed.

Other than the IMF, Pakistan is also asking others to roll over loans and to provide more financial aid. China has rolled over a $2bn loan and the finance minister has said that Pakistan would also be approaching Middle Eastern banks to help overcome Pakistan’s financial shortfalls once IMF funding has been secured. In other words, the country will be begging far and wide as has been the case for quite some time now.

But all of these details mean business as usual for Pakistan. The centrality of efforts to get money from the IMF means that this government, like those before it, feels that it has no option but to rely on sustained funding from the institution to survive.

One hopes that this does not mean that this government, like those before it, will not make much effort to raise revenues internally — especially from those who, unlike the salaried class, have managed to get away with paying few taxes or nothing at all and have enjoyed subsidies. For instance, will agricultural land holdings be taxed; will subsidies for the corporate sector continue; and will everyone adept at padding their pockets be allowed to continue doing so? Moreover, has any serious effort been made to prevent extortionist business interests from earning money in Pakistan and parking it abroad where they do not have to pay taxes?

In sum, the long wait for structural changes that are sorely needed to actually turn around the situation is likely to continue. As the ever-ready begging bowl goes around, the rich who ply the roads of Karachi in Ferraris, Porsches and even Bentleys will continue to live off the taxes paid by others. Flimsy efforts at austerity drives by the government — which include moves such as retaining business-class travel for ‘only’ a handful of state officials — will not work to convince the public of the government’s intentions.

The average citizen will pay through his nose at the pump, as per the dictates of the government and lender. There is callousness here, for while international institutions critique subsidies and praise free markets in the context of developing nations, they choose to ignore the fact that on the global market developed countries routinely subsidise their own producers. Smaller countries such as Pakistan cannot compete then.

None of these realities changes the priorities of the powerful or the gulf between them and the powerless. This new petrol hike is not as large as others before it and, on the face of it, the routine revision of rates imbues this fortnightly exercise with the air of something temporary, and thus not so significant. It will be just that for those who are playing the game, allowing the bitter medicine to drip-drip its way into the veins of a helpless nation, instead of administering it in one nasty gulp.

The writer is an attorney teaching constitutional law and political philosophy.

rafia.zakaria@gmail.com

Published in Dawn, April 3rd, 2024

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