Imminent default avoided, what’s next? nothing

With high deficit and debt, mini-budget and IMF tranche will not solve problems

ISLAMABAD:

Negotiations with the IMF have concluded and, hopefully, next tranche would be released soon.

Mini-budget is anticipated with further squeeze of ordinary citizens through indirect taxes, particularly in the energy sector that may yield a couple of hundred billion rupees. Imminent default could be avoided. This is the likely scenario for next couple of months, but then what? Nothing.

With a constant budget deficit forecast to stay over 5% in the coming years, consistent inflation of around 20%, if we go by official numbers, dwindling exchange rate and $21 billion repayment of foreign debt still due, where are we heading to? Can this mini-budget and IMF tranche solve the problems? Absolutely not.

Have we developed any medium to long-term plan for mitigation and response to this economic crisis? Absolutely not.

Are we raising voices on the absence of such a plan? Even if we are, are these being noticed by the quarters concerned? Absolutely not.

However, I would keep on, like a few other concerned citizens, at least to fill the Monday pages of newspapers as there is not much economic activity happening otherwise to be written.

It would be very easy for the finance minister to say, what are the alternatives? There are many, sir.

Please let the nation know what happened with super tax and how much the national exchequer would have gained, had we implemented it in true letter and spirit? More than this mini-budget, sir. However, it is easy to squeeze an ordinary citizen than the powerful corporates.

Please let the nation know how much can we squeeze from the non-development public expenditure at this point in time and how much do we spend on perks and privileges of the powerful ones. More than this mini-budget, sir.

However, it is surely easy to squeeze the general public. And there are many such black holes which are evidently eating national resources but no one touches them.

Let me present a suggestion for bridging the current fiscal gap, despite knowing that it wouldn’t be even noticed.

Rather than luring overseas Pakistanis with returns on investments that are unsustainable in the long term, why don’t we reach out to the corporate sector and issue “Pakistan Stabilisation Fund”, whereby big companies, particularly the banking and telecom sectors which have really minted unprecedented profits in recent years, invest in this fund for reasonable returns on investment and a long-term tax credit to be used over the next 10 years.

Even if the largest 10,000 companies of Pakistan invest in this fund, the resulting amount would be far higher than the one through the forthcoming mini-budget. There are at least 10,000 companies with such investable funds.

The Pakistan Stabilisation Fund may also have a consumer component, if the citizens of Pakistan invest through major foreign currencies. It is more like extending the Roshan Digital Account to citizens as well, and this idea has already been in the discussions.

The other track of investments by citizens may also be in Pak rupees, offering higher returns, to meet the immediate fiscal gap. This may help in avoiding the squeeze through the mini-budget.

Another logical contributor towards the Pakistan Stabilisation Fund would be the large housing societies, which are sitting on stashes of cash.

It may not be incorrect to say that the amount of extra cash with a major developer of housing projects is much larger than the anticipated revenue through the mini-budget. Can we not borrow this cash to meet the short-term fiscal gap?

There are many other options, only if one is serious to look into these. For example, rather than privatising national assets such as PIA and steel mills, please calculate how much we can raise if government officers’ houses in Islamabad are privatised.

There are hundreds of these in only posh sectors of Islamabad. An auction of even half of these would result in more revenue than the mini-budget. The problem is still the same; it is easy to squeeze the ordinary citizens than bureaucrats.

There is always a limit to everything, including the easy solution to raise revenue through squeezing the general public. The limit is almost over. It may be easier to manage debt default from the economic perspective than the social and civil backlash against the squeeze through indirect taxes, particularly on utilities.

So, what’s next? Nothing in terms of economic planning but a lot in terms of societal backlash. Brace for the impact in both cases.

The writer is an international economist

 

Published in The Express Tribune, February 13^th, 2023.

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