Stop the rhetoric, tell us if we are in the dumps

For those of you who are not economists, an 18 percent deficit budget for Pakistan is simply ridiculous.

Adnan Rasool May 27, 2011
As we get close to finalising an 18 per cent deficit budget for Pakistan, our institutions are busy bickering with each other rather than thinking, for a second, about how royally screwed we are with regards to our economy.

For those of you who are not economists, an 18 per cent deficit is simply ridiculous; normally countries have budgets around the 7-10 per cent marker, where the shortfall of funds is generated through either issuing bonds, cutting government spending or through public borrowing. An economy goes in to panic mode when the deficit hits double digits, but for some reason it does not seem to be an issue in Pakistan right now.

In recent weeks, we have heard tall claims about refusing foreign aid and loans in order to protect our integrity and sovereignty - all of that is well and good. Our politicians, specifically the opposition has made these statements without actually considering the realities of the country’s economy. We have a financial shortfall of 18 per cent.

If we are not going to take any loans or aid, how are we expected to bridge that gap?

And, if the idea is to do more public borrowing, wouldn’t that leave lesser funds to go around in an already cash starved economy?

These are the questions that have died out, while political rhetoric takes centre stage in Pakistan for the moment. But, the fact is, it is these questions that we need an answer for, more than anything else.

Economy in the dumps

The reason I say that is because firstly, a deficit budget effectively means that the amount of money available to run development projects will be cut down severely. In a country that is already starved of infrastructure development, decreasing the budget would further hurt the economy. In addition to that, given the natural disasters we faced in the form of the massive floods that left millions without homes, a decrease in development budget means the work for their rehabilitation and reconstruction is going to be cut back. So, while the tall claims about holding the victim’s hand and helping them back to their feet are made, we practically have no money to do that - or even half of that.

Secondly, the sort of budget that is in the works will lead to massive price hikes and taxation on pretty much anything and everything. In simple terms, things will be expensive as the government will try to bridge its shortfall through raising more money through taxation that will eventually lead to more inflation that will result in people protesting against the government.

This is a reality and it will happen - the least our government and opposition can do is be honest with our people and explain to them, in simple words, why things are going to be more expensive next year, again.

Thirdly, regardless of what our politicians and bureaucrats might say in the media, the fact is Pakistan’s export share in the global market is about 0.15 per cent according to recent statistics. For a country that has one of the largest populations in the world with about 175 million people, having a global trade share that tiny is just plain wrong. And to add insult to injury, the sort of budget that is coming our way is going to increase the tax rate on the manufacturing and services sector even further, making it harder to survive in the international market.

There are no quick fixes for any economy let alone our economy. Our institutions and specifically our politicians might lead us to believe that the economy is in the dumps, because they are not in power, but the reality is, it is because of their joint effort that we are stuck in this situation.  So, to start out, we as a nation need to have a simple and straight forward discussion about our economy.

Stop the rhetoric

We do not need political or bureaucratic rhetoric in this regard; we just need straight forward language to explain to the whole country what exactly is wrong with us. At least that way, a part of the population can understand the extraordinarily bad circumstances we are in.

Next, we need to stop saying “create jobs” and then just end up with bloated public sector organisations. If we are going to say that there should be job creation, then we must actually take steps that will encourage that, such as supporting entrepreneurs, not by creating a giant new institution with the aim of helping entrepreneurs,  but by just simply giving them money based on genuine good business ideas.

In addition to that, we need to provide incentives for new businesses instead of hounding people who intend to start one - simplify it for them. Currently Pakistan is ranked 83rd in the world with regards to starting a business - this is a fall from being ranked 75th in 2010. This just proves that the situation has worsened for anyone who is thinking of starting a business. In simple terms, less businesses equals to less jobs.

Lastly, we have been discussing this as a nation for ages now, but why are we not honest with Pakistan. I mean we all love being holier-than-thou and talking about how patriotic we all are, yet the majority of the country cheats on its taxes.

Isn’t it unpatriotic that you are stealing from your homeland by not giving it its due share?

The point is, this budget is going to be harsh and it’s going to hurt a lot of people. The majority of our population is going to suffer as our economy takes a further hit. Blaming the International Monetary Fund (IMF) and the World Bank (WB) is not going to get this economy back on track anytime soon.

Making tall political claims is not going to balance our budget. Anyone who says that we should stop relying on foreign funds is bullshitting their way to the moon and is just lying to the people of Pakistan.

Being honest about our economic situation is going to make a difference albeit a small one. Think of our country as a patient in denial - there is no way that a patient is going to get better unless he/she accepts his/her problems openly and willingly, as only then he/she can effectively start working towards improving them.

So, if we are serious about making things better for ourselves and our future generations, we need to simplify economics and explain it to the whole country. We do not need specialised economists to do that for us. We just need people willing to state the facts plain and simple. Until we do that, we are stuck kidding ourselves.
Adnan Rasool Currently the Deputy Executive Director Center for Enterprise, Trade and Development, Adnan is also a political analyst working mainly on electoral politics and political campaign management. He tweets at @adnanrasool
The views expressed by the writer and the reader comments do not necassarily reflect the views and policies of the Express Tribune.


A Ahmed | 12 years ago | Reply Hi Adnan, You raise some key points and valid concerns above. I do think there is a real need to take a step back and re-visit the funding model that is being (mis)used to run this country. Debt financing is absolutely fine if you are: 1- going to "invest" the money on projects rather than use it to fill the gap which is mainly coming from "inefficiencies" in the system and not from the fact that the money you have has been put to the most effective use 2- have the financial discipline. if you dont debt financing turns into a vicious circle you will forever be digging yourself out of! And frankly speaking, the country is being run by a bunch of motor mechanics who have never owned a car. As a commoner, to this day, I have only experienced the down side of debt financing in the form of ever rising cost of living. If this model really worked I should really have had some tangible benefits to speak of. Before we go out begging, perhaps we can re-structure our Taxation System to widen the net which will then mean a lower tax rate on an individual basis. The problem is incompetence and greed. You can only be helped if you willing to help yourself.
Hasan | 12 years ago | Reply Yawn
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