EDITORIAL: The spillover effects of the low growth/high inflation double whammy are becoming clearer by the day. And now, after all sorts of IFIs (international financial institutions) have warned about deteriorating human development indices, etc., the World Bank has also cautioned that “over 10 million additional individuals in Pakistan face the looming threat of descending into poverty”.
That is what you get, after all, when stubborn inflation in the 25-30 percent range (26 percent for the ongoing fiscal) combines with a sluggish growth rate of 1.8 percent. In fact, if there is a surprise here it’s that outside institutions have to tell us what the State Bank, Federal Bureau of Statistics (FBS) and finance ministry should have been crying hoarse about for a long time.
The Bank’s biannual Pakistan Development Outlook expects the country to miss all important macroeconomic targets this year. But that should not come as a surprise at all; because you’d have to look hard to find too many instances of finance managers actually meeting any of the budget’s more important targets any year.
And so the country will, barring a miracle, fall short of its primary budget target yet again, which means it will remain in deficit for the third year running despite IMF’s strict demands for a surplus.
How much of an irritant this becomes in talks for an EFF (Extended Fund Facility) following the SBA (Stand-By Arrangement) remains to be seen, of course. But everybody has a pretty good idea that it’ll lead to yet harsher “upfront conditions” that the Fund is now so fond of, not the least because it gets client countries, just like Pakistan, to fall into line very quickly.
Even the most conservative estimates put the current poverty rate at around 40 percent. And now, with the World Bank warning of another 10 million people at the risk of falling below the poverty line as well, there’s nothing to suggest how things can get any better anytime soon.
The government has no fiscal space for any sort of pro-poor subsidy programme or anything of the sort; at least not as long as it needs an active IMF programme to keep debts rolling over and the threat of default at a manageable distance.
Then there is also the terribly lopsided taxation system, which completely exempts the elite from making any meaningful contribution to the exchequer and instead relies on indirect taxes, which squeeze the poor a whole lot more than the rich, to meet the Fund’s benchmarks. That would mean, other things remaining constant, that the Bank’s next Development Outlook could paint an even more alarming picture of Pakistan’s poor and poverty trends.
There’s little to suggest that growth would be much better or, for that matter, with prices of utilities marching upwards again, that cost-push inflation would not undo moderate decreases in prices being seen now.
And while nothing obvious is being done about poverty alleviation, the government seems to be able to play no bigger role than that of a silent spectator as the poverty time bomb just ticks away.
Copyright Business Recorder, 2024
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