Yielding to the inevitable
The government has twisted and turned, ducked and dived, all in an attempt to avoid offering up the begging bowl to the IMF and all to no avail. The fair-weather friends have chipped in to be sure, and China and the Kingdom of Saudi Arabia have put their hands in their pockets to provide a fiscal prop but reality has now bitten.
China and the KSA were never going to come up with the kind of money that Pakistan needs, and soon, to bail itself out of the fiscal mess it to a large extent inherited from its predecessor, the PML-N.
That said there is now an argument to be made that the government has made a rod for its own back by not going to the International Monetary Fund (IMF) sooner, which it had the option to do.
A misplaced sense of pride has produced an option perhaps even more painful than it might have been – the penalty of immaturity.
It was Finance Minister Asad Umar who raised the white flag on Wednesday. He said that there was a real possibility that the rupee was going to drop even further against the dollar and inwards investment halt completely, as well as there being a rise in inflation if the country does not enter yet another IMF programme.
Even if the IMF deal is swiftly approved there is no quick fix and public debt is going to remain high. His perception was that by delaying an approach to the IMF the country had actually benefitted because there had been mitigation of the stringent conditions it was imposing as against four months ago.
The other side of that coin is that harsher conditions are what the country needs if there is to be long-term systemic change, and merely softening the blow just extends the recovery period. An avoidance of pain rarely results in gain.
Even so, getting out of the quagmire is probably going to extend beyond the life of this government. The next elections are in 2023 and the public debt to GDP ratio is still going to be above the statutory threshold of 60 percent.
The last government ended up on 72.5 percent on the back of some profligate borrowing – borrowing that it knew it was never going to have to make the political and fiscal changes to pay back – and the assessment by the finance ministry indicates that in the first three years of the PTI government public debt was going to rise by Rs10 trillion to Rs35 trillion.
The assessment was made in the knowledge of low revenues (read taxes) inevitably higher expenditure because nothing no matter what it is ever gets cheaper over time, and a fall in the value of the currency. None of this needed a state-of-the-art crystal ball; it is at the level of high-school economics.
Thus it is that the government now faces a state of permanent economic crisis for the entire duration of its term. It has every right to feel aggrieved at the actions of its predecessor but that fixes nothing, and the announced tax amnesty is going to prove ill-judged in hindsight.
There is no sign of root-and-branch revision of the system of taxation and it is now possible to posit a scenario in which Pakistan is eternally fiscally crippled as there is no political willingness to take the steps that would eventually lead the nation out of the debt trap.
This is a bleak future indeed and we derive no satisfaction from presenting the picture as starkly as we have. It is not impossible to fix Pakistan, long slow and very painful though that will be, but there has to be a cross-party political will to do that and it is absent.
No party has the courage to do the needful, and certainly not the PTI. The emergence of the PTI leader in the eyes of some to be a national savior is nothing but a mirage – a vision that we never get closer to no matter how hard we try. There is an old anarchist axiom – ‘don’t vote it only encourages them.’ Rarely has the ringing bell of truth sounded so loudly.