EDITORIAL: World Bank officials while briefing the media noted that Pakistan’s poverty level rose to 39.4 percent in the outgoing fiscal year, pushing 12.5 million people below the poverty line, an unambiguous indication of the failure of the economic development model to reduce poverty.
The government data suggests that a large percentage of those who recently joined the ranks of the poor are those who lost jobs due to sustained negative large-scale manufacturing (LSM) growth – negative 15 percent for 2022-23 and negative 10.3 percent for July this year, a decline that is less reflective of an uptick in output as noted recently by the Monetary Policy Committee and the Caretaker Finance Minister and more due to the very low LSM base.
The government’s contribution to this disturbing state of affairs is clearly evident from its ever-rising current expenditure crowding out private sector credit, which registered negative 178.6 percent growth last fiscal year.
And while the then Finance Minister Ishaq Dar’s decision to raise the budgeted current expenditure for the ongoing year by 26.5 percent against the revised estimates of last year, and more than 50 percent against the budgeted amount for last year, can be laid at the doorstep of lack of economic expertise coupled with political compulsions of his party yet the same cannot be used by the caretaker setup as justification.
It is critical that the caretakers take all stakeholders who were instrumental in their appointment on board and insist on voluntary significant reductions in their budgeted allocations, which in turn would reduce the pressure to raise taxes further and create leverage with the International Monetary Fund – leverage that may well translate into providing some relief to the vulnerable.
The budget outlay for the current year for Benazir Income Support Programme is 466 billion rupees – an amount that is grossly inadequate to meet the needs of the recent additions under the poverty line and with inflation at over 27 percent the monthly per beneficiary disbursement of cash is increasingly becoming insufficient to meet more than a week’s worth of essential food items for a family of five.
Poverty not only fuels public discontent that may translate into violence on the streets but also fuels crime, petty as well as organised crime, including smuggling.
In other words, the illegal operation of smugglers/speculators will resurface as soon as the law enforcement agencies ease up on their ongoing crackdown that requires manpower and resources, which cannot be sustained indefinitely.
Critics would no doubt challenge defining economic policies that have prevailed for most of our 76-year history as an economically viable development model, given the steady rise in elite capture of current budgeted expenditure (with only civilian and military expenditures - both in terms of wages and procurement - keeping pace with inflation as well as failure to reform the pension system with zero employee contribution).
In addition, there is enhanced reliance on indirect taxes as a source of revenue whose incidence on the poor is greater than on the rich.
There should therefore be no ambiguity in concluding that this model is no longer feasible from a socio-economic perspective, a fact reflected by the widespread discontent against the recent raise in electricity price.
Pakistani governments, the caretakers as well as their elected predecessors, typically pass on the buck for upping the utility tariffs to the IMF programme; however, they refuse to dwell on the root cause of the electricity crisis which is signing contracts that favoured the Independent Power Producers, including those signed under the China Pakistan Economic Corridor, that may have ended the country’s generation shortfall but account for the failure of consumers to meet the rise in their bills.
Price of fuel does not present a complete picture given the 60 rupee per litre petroleum levy with the objective of meeting the government’s ever-rising current expenditure to the tune of 869 billion rupees in the current year alone.
Study after study, by independent economists and those sponsored by multilaterals and bilaterals have not only identified lacunas in the development model but have also proposed remedies based on sound economics.
These remedies have been derailed time and again by the influencers of government policy – civilian and military establishment – as well as cartels that proliferate in this country even in those sectors where perfect competition conditions should prevail given a very large number of buyers and sellers in the market.
An example is the sugar cartel that has not only ensured a price well above what market conditions would have dictated but also managed to get export subsidies.
To conclude, the remedies of each sector/subsector are available in reports gathering dust in the relevant ministries, the only problem is that the elite capture is continuing though those elites operating at the lower end of the spectrum have also begun to see a decline in their quality of life.
However there is no indication of either ongoing negotiations with the major recipients of current expenditure to voluntarily reduce their budgeted outlay for the year nor in widening the tax net to include those who remain outside - not because of their income but because of the clout they continue to wield with the economic decision-makers.
Copyright Business Recorder, 2023