Economic story: Recognize suffering! – Opinion
Draconian economic measures are back. The capacity and ability of the public to withstand another crisis diminishes. Purchasing power, which had already eroded in the aftermath of the corrective measures taken in 2018-19, is once again in free fall. Without going into the details of why belt tightening is imperative, those in the driver’s seat need to empathize with the losers (majority of households) rather than counting the wins by a fraction.
Frank comments about the gains from remedial action may well be technically relevant. But this is no way to manage strategic communication when large sections of the population are shocked by the consequences of these same measures. At the very least, policymakers and economic policy spokespersons should share the collective pain rather than rub it against those who are already suffering. If a motorcyclist dies in an accident with a car, you don’t tell the family of the deceased that the owner of the surviving car also has auto insurance.
When the PTI government came to power, it was forced to unwind policies pursued by the previous government (especially those leading in 2013-17), and corrective action had to be taken immediately. It was done reluctantly – and almost a year was lost in the process. The currency depreciated and interest rates were raised. Taxes have been imposed and development spending has been reduced. Energy prices have been revised upwards. The economy faced a slowdown and employment opportunities were reduced. As a result, purchasing power has declined considerably.
At that time, the incumbents were entitled to blame the old leaders. He had to face the unenviable task of explaining to the public the immediacy of corrective action. He has been criticized by the same parties which sowed the seeds of the economic crisis, but who had the audacity to criticize the incumbents for trying to fix the mess. The tightening measures taken at the time were inevitable and the aim was to protect the economy from a greater disaster in the making. The PTI has pledged to carry out long-awaited structural reforms and change the direction of the economy before growth can pick up again.
But that did not happen. Instead, the incumbents jumped at the first opportunity to open the floodgates of fiscal largesse. The belts were loosened in 2020 after the country was hit by the Covid-19 pandemic. Hopes for structural reforms have faded into the background, and the old formula of import-led growth and administrative control over inflation has been revived. Although reforms to liberalize and deregulate key sectors have been promised, the government has instead strengthened its footprint in the food and energy supply chain.
For better or for worse, the incumbents made this bed and must lie down in it. The construction amnesty program and low flat tax rates on a per square foot basis have spurred real estate speculation and elite housing construction. The public has sold the mirage of affordable, low-cost housing. Today, affordability is more expensive for the middle and lower classes – with or without a mortgage.
The elites got everything they could want. Not only were they given the opportunity to launder money in construction, but they also received concessional financing for industrial expansion – while deploying the retained earnings in real estate in Pakistan or abroad. Once again, the rich are getting richer. Even today, state tycoons criticize rising wages for masons and workers, falsely accusing it of demand-driven inflation.
This is a nasty attempt to deflect attention from the abnormal returns the elites have achieved through government largesse, as they conveniently forget that real wages have yet to catch up to 2018 levels. may have a hard time understanding the plight of the audience, but at least she shouldn’t rub salt on the wounds of those in pain.
Due to better policy measures and a fluke, Covid-19 has not hit Pakistan the same way it has hit other regions. When the time came to unwind the concessions, the Prime Minister changed financial teams. The new ministry came with a new impetus to stimulate growth based on the old model. The commitments made to the IMF (International Monetary Fund) in March 2021 have been totally ignored.
These commitments were frozen by the IMF in February 2020 in the face of an impending global economic collapse due to a pandemic. The government received the economic respite it wanted and should have used it to accelerate the implementation of structural reforms once the effects of the pandemic abated. Instead, he continued to stimulate hollow growth. Now the reality is hitting hard. And the IMF no longer seems in the mood to make concessions. Perhaps the finance team will eventually get the reprieve they want, at the expense of compromised foreign policy.
At this point, government officials – whether SBP (State Bank of Pakistan) or FinMin (Ministry of Finance), should have the courage to speak the hard truth. Yes, the belt must be tightened to avoid the seizure. Yes, world prices are no longer in Pakistan’s favor. Yes, the prices of oil and gas must go up. Yes, we need to stem the flow of circular electricity debt. Yes, the currency has to adjust. But the need might have been less if the political measures taken in recent months had not been motivated by a short-term program and had not been so oblivious to the realities on the ground.
Nevertheless, we are there today. The government is taking the right steps; it does not matter whether they are taken by choice or by force. He had the golden opportunity to tackle the mess over the past 12 months, but made conscious decisions that had the opposite effect. The finance team has to face the music. It is time to undertake structural reforms, such as in real estate.
The real victims are the general public, which had to tighten their belts first before the pandemic due to macro-adjustments, and are not facing the consequences of the global spiral in commodity prices. Recognize that these actions are painful. Accept that harsh measures – such as energy tariffs – could have been partly avoided if structural reforms had been undertaken. Compatibility with their pain and sincerely carry out the reforms necessary for the economy to truly take a turn.
Copyright Business Recorder, 2021