Budget bombs

Budget time makes most Pakistanis nervous – particularly people belonging to the low- and middle-income groups. For ordinary Pakistanis the budget means another hike in prices of daily commodities of life and new or increased taxes – especially on those who are regular taxpayers. Every year these ordinary Pakistanis also hear the same cliched speech by almost every honourable finance minister, who always blames the past government for the “economic mess” and identifies the structural flaws of the economy – a task already done umpteen times by ministers before him – as he promises reforms while urging the nation to endure the economic blow one more time for the sake of future generations and the country.

But while yesterday’s young have become today’s old and the old have gone to their graves, the state of the economy has only gone from bad to worse. The public debt has gone up to an extent that is making external payments unmanageable. During the current fiscal (2021-22 July-June), the external debt repayments were at a staggering $25 billion – thanks to all the foreign loans accumulated from 2008-18. Now Pakistan is forced to borrow new loans only to pay the old ones. This was the trap from which the Pakistan Tehreek-e-Insaf (PTI) was never able to get out of. In the next fiscal 2022-23, it is estimated that Pakistan will have to dish out a massive $37 billion under the head of foreign debt repayments. This is more than triple of our defence budget, which hovers at around $11 billion and the meagre development budget — now slashed to a mere Rs 800 billion.

No wonder that Miftah Ismail, the finance minister of the Shehbaz Sharif-led government, started his budget speech with a seething attack on the PTI government’s alleged economic mismanagement as he brushed aside its gains made under extremely difficult circumstances which also included the challenge of the Covid-19 pandemic.

As the finance minister reiterated the message of taking difficult decisions on the economic front, Pakistanis are well aware that it is an IMF-dictated budget over which Islamabad has little control. In fact, the common man started to face the bite of the IMF conditions in the form of a surge in the prices of petroleum products and a sharp upward revision in the electricity and natural gas tariffs much before the 2022-23 budget was unveiled. This means that even before the budget was announced, this government had laid the grounds for a sharp increase in inflation. The new budget has further tightened the noose around the common man with an increase in duties on many items of daily use, withdrawal of subsidies and a host of oppressive direct and indirect taxes. One can argue that the government has no option, but to go for such measures. However, this is also a fact that the genesis of this economic mess lies in the artificial political crisis which was thrust upon Pakistan through the controversial vote of no-confidence motion, which brought the PTI government to a premature end.

This vote of no-confidence — in which loyalties of many government benchers and allies were bought and sold — pushed the economy on the backburner at a time when it needed deft handling. The PTI government had slowly been able to stabilize the economy through a series of measures – the result of which is reflected in the macro-economic numbers – from exports to revenue collection and record remittances – which all showed an upward trend.  However, the exogenous shocks – the Ukraine-Russia war which pushed the world commodity prices to record highs — offset Pakistan’s gains as its import bill soared. Had there been political stability, the Imran Khan government could have taken timely action to lighten the blow of these exogenous shocks. But nearly three months were wasted in the run-up to the vote of no-confidence and more than a month lost due to the inaction of the new government. Net result: this economic mess.

Going forward as the government bigwigs talk about holding a grand national dialogue and a charter of economy, they have to be mindful that ending political polarization is the first step before one can move towards these steps. This polarization can only end following fresh elections.

It would be a pipe dream to think that this incomplete National Assembly (minus more than 120 members) and a controversial government can bring stability. For economic revival, political stability is a prerequisite.