Saturday, February 10, 2024
The election drama will be over soon, but the economic theatre is going to haunt the country in the coming days. While this real threat is still here, it is not getting enough attention.
Managing the economy will not be an easy task, and the incoming government is likely to face several changes when dealing with fiscal mismanagement.
The government has failed to bring down the double-digit inflation of 29.7%, and many believe that this unbridled inflation will make the lives of middle-class and poor people even harder. The government’s contractionary monetary policy is not producing any fruitful results either.
The State Bank of Pakistan has maintained the policy rate at 22%, but is it worth it? Is it not further choking businesses in the country? The high prices of fuel and raw materials have pushed inflation to a new level, which has adversely impacted the purchasing power of consumers.
The country is exposed to financial vulnerabilities; it is heavily relying on debts. Pakistan’s external debt and liabilities stand at $128 billion, and the government has to pay $77.5 billion by August 2026.
The country’s debt servicing obligation exceeds its overall tax return for this year. The government expenditure is Rs14.46 trillion, less than half of this will be covered by tax revenues while the remaining will be financed from different types of debts from external, banking and non-banking sectors. This further borrowing will push the economy to the point of no return.
The new government will face extreme difficulties as it has to repay huge sums and has no blueprint to accumulate dollars and reduce economic distress. It is the bad luck of the country of 250 million people – with the largest share of young people – that it has no way forward for good governance, rule of law, and economic management.
The high unemployment rate will prove to be a time bomb if the youth is not utilized properly and remains marginalized. The country does not need populist agendas; it needs some stringent reforms, or else everyone in the country, across all classes, will feel the heat in the coming days.
Dependence on international lenders and friendly countries will not help the country. If it were the solution, Pakistan would have not signed 23 IMF loan programmes so far. Despite this massive borrowing, the economy is in the doldrums. The country needs to mobilize its resources for sustainable economic growth and rethink its unwise consumption patterns. It is the dilemma of the country that its bureaucracy is roaming in luxury vehicles, bought on borrowed money, having no output in the form of good governance. The addiction to borrowing and the lavishness of spending will crumble the weak Pakistani economy.
With meagre revenue and a high deficit, how can the country be stabilized financially? Despite repeated warnings, the country’s policymakers are reluctant to take corrective measures and abstain from taking further loans. The country’s debt has turned unsustainable as more loans are borrowed to repay the old ones and thus the vicious cycle of borrowing goes on.
Every government relies on short-term remedies to relieve the symptoms but no one is diagnosing the real problems by adopting long-run and effective measures. Even Bangladesh and India were facing the same issues but they have made some painful reforms and are now on the right track to economic growth.
In these hard times of stagflation, unemployment and low growth, indirect and regressive taxation will not help the 40% poor population of the country.
The only way out is to focus on the young population by encouraging entrepreneurship and innovation. The reliance on loans will not save the country from the looming economic disaster, only reforms and prudent economic management with faster and sustainable growth can help.
But this cannot be achieved through some magical means. Only painful fiscal choices can relieve the pain and put the country on the trajectory of progression.
The writer is a lecturer of economics at KP-TEVTA, and tweets @wajidislam01
Originally published in The News