EDITORIAL: One of the enduring lessons of economic downturns is that they run households, especially middle- and lower-income classes, into the dreaded debt cycle. And that is precisely what mounting inflation and unemployment have triggered in Pakistan.
For newspapers are suddenly flush with features quoting breadwinners who are no longer able to provide for their families as before.
There’s a very clear pattern. First, they cut costs when and where possible, starting with cheaper and fewer meals. Then they downgrade their children’s schools; with ever larger numbers pulling them out altogether and turning to cheaper religious seminaries.
And then, when monthly bills alone dwarf their paychecks, they turn to borrowing towards the end of each month – paying off those loans by borrowing more from other sources before the deadline runs out. And so, they enter a vicious circle that few are ever able to escape, especially when the economic outlook is as gloomy as Pakistan’s.
These trends ought to rattle the government in Islamabad. But it is conveniently able to look the other way because it is around for a very short time and has its hands full with arranging the election and making sure IMF’s “upfront conditions” are not violated. Still, authorities need to take notice because this is not the kind of downturn that will go away quickly.
All the people’s problems – inflation, unemployment, bloating bills, increasing school fees – will continue to worsen for the foreseeable future, and beyond. Because even if the current IMF programme is successfully completed, which will require more pounds of flesh from the public, there will be a very urgent need for another one, with similar if not harsher conditions.
Now we have a country buried under debt full of people caught in the debt cycle. Even if we factor in a turnaround a few years down the road, for the sake of argument, we will still have to face much worse poverty, literacy and nutrition rates, just to name a few.
Unfortunately, the state does not have, nor seems likely to have anytime soon, the kind of fiscal space that such socioeconomic disasters demand. It’s simply unable to cut taxes or extend subsidies, in the present circumstances, because of ironclad agreements with the IMF.
It could, however, lend an ear to what the IMF chief just told the caretaker prime minister on the sidelines of the UN General Assembly and finally drag big time evaders into the tax net. But that requires the kind of will and muscle that our ruling elite, democratic and military, have never been able to exercise.
Yet a state that cannot protect its citizens from the debt cycle is condemned to watch as its standing declines on the global stage. Pakistan has no shortage of critics ready to declare it a failed state, with some justification, and now they have all the ammunition they need.
The first order of business ought to be raising enough revenue to go back to the Fund and demand lighter conditions. And that, once again, will require taxing the mafias and special interest groups that the long arms of the law have never reached in this Islamic republic.
Going forward, if they remain unfairly and illegally protected, then honest, taxpaying common people will drop further down the food chain, and a demographic disaster will build even as the country bends over backwards to arrange more bailout loans from international institutions and friendly countries.
History books are full of other lessons also, like what happens when a household debt cycle inflates into an unsustainable bubble and then bursts, forcing people to turn their helplessness into rage against the state itself; something we came dangerously close to when the shock of August’s electricity bills forced people onto the streets. Therefore, whatever needs to be done must be done quickly.
Copyright Business Recorder, 2023
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