Analysis: Permanent Woes, Temporary Fixes

Permanent Woes

The cost cuts announced by Prime Minister Shehbaz Sharif send a welcome signal at a time of financial crisis and could help the coalition government regain public standing and move closer to finalizing a deal with the IMF. But will these measures solve the structural problems that force this country to regularly knock on the IMF’s door for emergency services? It doesn’t seem likely. In fact, it is impossible to Permanent woes.

For example, these patch-aid measures will not solve tax problems or solve a crisis in the energy sector. At best, these funds cover expenditure gaps for several months; at worst, they will push economic and financial reforms onto the government agenda. 

This isn’t the first time the government has tried to hide its inability – and lack of political will – to avoid a wholesale restructuring of the economy’s Permanent woes. Every government resorts to similar cosmetic measures to appease public anger by showing it cares for the poor. 

Remember when Imran Khan auctioned PM House cars and buffaloes as part of his austerity drive? It made great TV, but did it change our economy or keep us from going back to the IMF?

There is no question that the government needs to shed the excess fat that is driving up its spending and forcing it to run large budget deficits of more than 7 percent the size of the economy year after year. In fact, recent spending cuts are broader and deeper than those introduced previously.

But it would still be foolish to expect them to be able to cope with our frequent ups and downs. Announcing the measures at a news conference on Wednesday, the prime minister said his army of ministers, advisers, and special aid workers have been urged to voluntarily forgo salaries, allowances, luxury cars,  five-star hotel stays, and business travel, all of which will be a boost to savings. 

The government expects that they, along with a range of other measures, will help save Rs 200 billion (about US$766 million) or 15% of current spending over the course of a year.

What can be done? 

Financial markets specialist and Islamabad-based Economic Advisers Group (EAG) member Samir Ahmed says the country is struggling to weather the worst of the economic Permanent woes and financial crisis and the austerity initiative is nothing more than a public relations exercise. 

“There is nothing important or special about it. In the past, these devices largely played on the gallery and eventually failed. The news is no different. It’s just a showcase before citizens get scammed,” he says. “I don’t think people  take this tasteless crap seriously.” Costs are symbolic and cannot replace real reforms “Austerity initiatives will not solve our tax problem or our energy sector.

In fact, such tricks distract from real problems. Remember when we ran a widespread anti-corruption campaign under the previous government’s Permanent woes? It didn’t solve our economic problems or keep us from going back to the IMF, did it? 

He added: “We resort to this deception because we are unable or unwilling to tax untaxed and undertaxed sectors and individuals to expand the tax net Permanent woes. Overall, he said, the government needs to balance the budget by expanding the tax net, cutting unnecessary administrative spending, and privatizing state-owned companies that are losing billions of rupees each year.

“Another elephant in the room is the energy sector, which needs to be transformed and streamlined to stem the drain of resources. Externally, the government should implement policy reforms to encourage and stimulate exports and attract debt-free FDI [foreign direct investment]. 

Far-reaching reforms 

This means that the government must implement a wide range of reforms without wasting time on short and long-term economic stability. 

Reforms should begin with an end to government interventions in the currency market to fix the dollar rate, which in recent months have led to factory closures and job losses, as well as exacerbated the crisis in the dollar market, or affected the central bank’s monetary policy price stability. 

In the long term, the government needs to implement comprehensive tax reforms to align taxation with growth targets and reduce income inequality and Permanent woes, privatize state-owned enterprises to stem taxpayer cash flow, repair the energy sector, etc. 

Externally, the government should promote an anti-export -End policy through far-reaching tariff reforms to encourage productivity growth for exports rather than just the domestic market, lift industrial safeguards against Permanent woes that are proving discouraging for exports, and ensure policy coherence to attract short-term foreign investment to replace credit. 

As Shahzad Saleem, one of the country’s top textile exporters tweeted: “With the people of Pakistan, everyone in the world will try to invest and share the growth if we can put our own house in order Permanent woes. Let’s end this austerity and tax the rich slogans, start the economy and sell what needs to be sold.”

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