The AJK curtain-raiser

I fear the recent unrest in AJK was not an isolated affair, nor does the delayed Rs35bn sweetener mean the end of it. In fact, this was just a curtain-raiser, a trailer of what is to come.

And it’s no longer just unaffordable electricity or even staple food that is stirring protests, but people have also had enough of the overbearing, parasitic state structure that gobbles most of the country’s precious little tax revenue and throws it into the black hole of salaries, pensions and perks of the elite.

Also, it’s not like things are going to get much better. Everybody is happy about the prospect of the next IMF programme and SBP cutting rates at the next MPC, but how long will the euphoria in industry and the stock market last when the programme’s conditions raise taxes, increase cost of doing business, pressure utility bills (like the last EFF) and push up cost-push inflation?

It’s also important to understand that the AJK protests did not display the usual kind of discontent, where people pour onto streets to register their disapproval of policies and then go home. This time residents came out because a lot of them were simply unable to pay their bills – utility bills have bloated to levels more than their monthly incomes. Even worse, even food is now becoming unaffordable.

It’s important to understand the backdrop. Things are so bad because we are now so deep in the classic debt trap that default is inevitable, unless we are on an active IMF programme. Because it keeps our debt payments rolling over. But the Fund has thrown enough good money after bad money in non-starter markets like Pakistan and now insists upon “upfront conditions”; painful structural reforms that are now unavoidable.

That requires more revenue – the Fund has already asked the government to “do more” – and since the state has never taxed and will not tax the rapacious elite, because it is always in or connected to government, indirect taxes will continue leading FBR’s charge and the middle and lower income classes, which had nothing to do with this financial mess, will keep bleeding to pay for it.

But now they’re almost bled out. Remember what happened after last August’s electricity bills jumped about 40pc because of these taxes and people came out up and down the country; not just because it was unfair but also because many of them did not have enough in the bank to pay for just the electricity bill? You can imagine how low things like keeping the kids in school must have suddenly dropped on the priority list.

With another IMF programme on the horizon, people know household incomes face another series of drastic cuts even as inflation and unemployment remain elevated. And, to add insult to injury, they must not only pay for the state’s sins – wrecking the economy – but also subsidise the lavish lifestyles of the endless army of individuals who work in it.

So, how long do you think it’ll be before protests similar to AJK’s spring up again?

Some horrifying stats speak for themselves. Pakistan is the fifth most populated country in the world – and one with the lowest tax-to-GDP ratios. It is also in the top 10 in poverty and illiteracy. Around 50pc hover around the poverty line. How long do you think they’ll be able to pay for all the debt that was acquired by the elite but then just disappeared?

But pay they must. Otherwise the bailout will halt, the debt will become due – approximately $30bn in the next fiscal alone – and surely there will be sovereign default.

I foresee, ceteris paribus, increasing unrest and agitation when the joy of signing the next EFF fades as its conditions become clear, inflation turns up again, and the market tumbles; probably around the time its second tranche is due. That’ll be a handful for the government. But it’s not as if it doesn’t have enough pampered and protected people on its payroll to find workable solutions.

Copyright Business Recorder, 2024