A special report in Business Recorder the other day revealed that it might not suffice to cut subsidies to revive the Extended Fund Facility (EFF). The International Monetary Fund (IMF) will still put the budget under the microscope to check if expenditure and revenue figures are in keeping with the agreement reached with the Imran Khan administration before signing on the dotted line. That leaves no room at all for anything pro-people; even when pro-people means only pushing in the knife, not twisting it also.
So the first jump in prices at the pump might have got the equity and currency markets turning on false hope. No surprises for guessing how quickly they’ll tank once again if the Fund is not impressed with what it sees. That can’t be allowed to happen, of course, because it would turn off the debt tap when no more loans means certain default in the very near future. That’s not something they’ve talked about so far, perhaps not to spook the markets prematurely, but it will be all over the news if the EFF is cut off permanently. Write that down somewhere.
So far all the commentary has centred on how all this makes things very difficult for the government. First the Pakistan Muslim League-Nawaz (PML-N) administration refused to raise prices until it felt sure that there would be no snap election, and it would have time to deliver results. Now it’s realising that one year, even two, will not be enough to turn things around after contracting both fiscal and monetary policies as cruelly as the Fund demands right now. It will, therefore, have to go to the next election, whenever that is, with high prices, high taxes, low growth and low employment and get grilled by Pakistan Tehreek-e-Insaf (PTI) every step of the way.
That’s going to be very tough, indeed, yet nobody’s quite presented the picture from the people’s point of view so far. Every few years the elite fights over the right to draw more debt and tax them more to pay it off. And every time each one of them promises to do whatever is needed to the other to return the people’s stolen wealth to them in the finest traditions of third world democracy. And each time, without fail, the government or the prime minister is thrown out ahead of time, leaving behind more debt, higher taxes to repay it, and even less weeks of import cover than it inherited.
This time things have reached the breaking point. The money needed to run the country will just not come until the state punishes the people more for its own excesses. Rolling back subsidies will and then cutting taxes amounts to engineering another round of very high inflation and retarding production, jobs and growth. But it’s important because nobody will lend to us without it. Even traditional emergency lenders in the Gulf are not ready this time if the Fund will not play along.
It’s difficult to see how any structural adjustment will take place if everything from food to fuel is too expensive for most people in a country of 220 million to afford, money is too expensive for businesses to borrow and expand employment and production, and there’s a reserves crisis every few quarters when debt repayment is due. But that’s precisely why this must be done. So somebody can give us enough money to stay above water every time the tide rises.
Otherwise, the people will suffer a lot more than the leaders who will just pack up their sugar mills and go to their numbered accounts and prime real estate abroad. Just like this time, if the subsidies were favoured over the EFF then the people’s relief would have been very short-lived. Because making them feel good by paying a little less at the pump for a little longer would have blown a big enough hole in the current account that subsequent taxation would surely have wiped out a chunk of the population. They must, in other words, suffer higher prices and taxes now so it doesn’t have to get much worse later.
What should ordinary, hardworking, taxpaying Pakistanis make of the budget as it sheds subsidies and adds taxes and tariffs? The ones that never held power, never even worked for the government, and never benefitted from a dollar that came to the state bank? Just that their leaders are forced to keep them poor to keep them alive?
Perhaps the next unhappy ending will extend from the government of the time to the system itself because 75 years of everything including military rule and representative government have brought things to a point where a nuclear power is celebrating independent courts and a strengthening democracy, yet struggling to keep the common man on his feet. And there are well over 200 million of them, remember?
Copyright Business Recorder, 2022
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