Pakistan has finally decided to stop becoming the progeny of the Mughal Empire (1526-1858), which perished under the weight of lavish spending around 160 years ago. Pakistan has learnt that it should be economical in its expenses.
On February 22, Pakistan’s Prime Minister Shahbaz Sharif held a press conference to announce austerity measures which his government would take to save Rs 200 billion to meet the conditions of the International Monetary Fund (IMF), which would then issue the withheld tranche of $1.2 Billion to stimulate the country’s economy.
The estimated amount of Rs 200 billion is in addition to Rs 170 billion which would be collected through the recently introduced mini-budget to pacify the IMF. The life of the mini-budget will be at the end of June this year. Nevertheless, through the mini-budget Pakistan has fulfilled certain pre-conditions imposed by the IMF, but some are still left pending.
The austerity measures announced are just the beginning. The reason is this: Pakistan has to do two things simultaneously: first, reduce the budget deficit; and second, service loans. To do both together is a herculean task. Pakistan cannot avoid taking more measures to appease the IMF and run the economy in the long run
The austerity measures which Mr Sharif intends to introduce revolve around five main points: reducing expenses of every government department by 15 percent; curbing the buying and unnecessary usage of vehicles; denying plots to government officials; serving one dish to guests; and establishing a single treasury account for the military audit. Besides, Sharif also announced that a committee would be formed to inform the cabinet about the ways the government lands can be sold to generate income.
By any assessment, these measures are inadequate to meet the needs of the ongoing economic crisis. The IMF is demanding an immediate increase in direct taxes on those who are earning high salaries and enjoying concomitant benefits of perks and privileges. They can be taxed through deduction at source. In England, from the declared monthly salary of £2000, 40 percent tax is deducted at source. That is, the employee receives £1200 a month. Pakistan has to move in this direction.
On the occasion, Sharif said that these austerity measures would be continued till the end of June this year. Sharif might have said so not to unnerve the audience, but the reality is that the end of June would not herald the end of the economic crisis. Certainly, neither will reliance on indirect taxes (or consumption taxes) nor will dependence on austerity measures go beyond a limit. On the other hand, the IMF is not interested in restructuring Pakistan’s debt. It means that Pakistan has to restructure its economy. It is unavoidable, especially for the long term health of the economy.
For instance, Pakistan has to privatize certain state-run entities which are incurring incessant losses. Second, Pakistan has to reduce non-developmental expenditures, including the defence budget, by 10 to 20 percent per annum to at least one third of the current spending. Third, Pakistan has to declare assets of government servants, both civil and military. No exception. Even judges of the judiciary have to declare their assets publicly. No one should hide one’s assets. No immunity; no sacred cows, where financial matters are concerned. No institution can enjoy monopoly on national resources and national affairs. All institutions running on public money should be open to accountability, both moral and financial. For this reason, the IMF also demands amendments in audits and accountability laws to enhance the confidence of taxpayers. These reforms are still pending. The declared austerity measures offer no substitute for them.
The question is this: why should people pay taxes which would serve the purpose of government servants, both civil and military (including judges as well), who would be privileged to hide their assets, and who would be beyond accountability?
This is the major question which prompts people to evade paying taxes. Without addressing this question, the tax recovery to meet any given target may not be possible. Pakistan has to do away with exemptions and exceptions. No sacred cows. All have to stand equal.
On the occasion, when Sharif said that the austerity measures would be till June this year, he gave the impression that July would be different from June. One hope could be that July would help Pakistan come out of the shackles of the IMF. This is not the case. The real picture of the budget would be apparent in July for the fiscal year 2023-2024, which would also be in the light of the IMF conditions. Pakistan will have to take the prop of the IMF in July as well.
There has emerged an imbalance between the public and the private sector. After the reforms of 2002, the private sector expanded manifold. Consequently, there emerged a competition between the traditional provider of employment (the government sector) and the private sector as the generator of new employment. Pakistan witnessed the time when government officers demanded (and in certain cases, enhanced their own) salaries equal to those working in the private sector. Moreover, government officers tried to hog the areas where the private sector could perform.
It is high time Pakistan had to make more space for the private sector to function. The government sector cannot monopolize power and resources. The government sector has to end its competition, especially in terms of salaries and other financial benefits, with the private sector.
The austerity measures announced are just the beginning. The reason is this: Pakistan has to do two things simultaneously: first, reduce the budget deficit; and second, service loans. To do both together is a herculean task. Pakistan cannot avoid taking more measures to appease the IMF and run the economy in the long run.
It is heartening to see that, even to the annoyance of the rich and influential, the IMF has spoken for the welfare of the poor, who remain removed from policies and power. Pakistan has to understand that more funds be directed to developmental sectors such as education, health and infrastructure. If these areas are not preferred, the possibility for the generation of growth in the form of educated, skilled and healthy workforce would diminish. The same would further shrink the economy and adversely affect yearly economic growth. Pakistan has finally reached this make or break pass.
