Middle class is in deep recession

What good is a 3.2 percent GDP growth rate next year and inflation dropping below 10 percent in FY25 to someone who’ll be bankrupted by his electricity bill this November?

Soon enough, as all the new taxes bite into earnings and inflate utility bills, this kind of forced insolvency will explode up the food chain, creating a bubble in household and small business debt that will never be repaid, sowing the seeds of institutional delinquencies down the road.

The lowest income groups have been falling below the poverty line since the Covid freeze cut deep into the job market.

But the economic collapse of the next two years was self-created, because the politics of the no-confidence movement led to ridiculous, reactionary policy decisions that derailed borrowing/lending arrangements with “friends” – fruits of years of marching the begging bowl from Beijing to Riyadh – and eventually crashed the EFF (Extended Fund Facility), bringing sovereign default as close as a fiscal or two at the most.

The SBA (Stand-By Arrangement) that followed – so celebrated by the prime minister – removed default from the radar (for the time being) but it did no wonders for the job market as its conditions raised taxes, made energy expensive, and triggered rapid retrenchments, spreading insolvency from the lower to the middle-income groups.

Remember last August, when a sudden 40pc increase in electricity bills led to protests up and down the country and the caretaker information minister said he’d called the IMF but they didn’t answer because it was late night in Washington? – a fitting trailer for a horror movie featuring record inflation, unemployment and taxes ganging up on an unsuspecting working class.

Interestingly, this year the prime minister’s usual independence day lies featured a promise to deliver “good news” very soon about “reduction in electricity prices” and “a new economic plan”.

Yet entrepreneurs that get suckered into believing this baloney will pay with defaults on their expansion loans because the only plan he will announce for quite a while will come from the IMF and the only way electricity prices are going is further north, incrementally, and not by small amounts.

Very soon, perhaps even before the new EFF is officially sanctioned, new taxes will increase electricity bills for some of the country’s poorest consumers by 40-50pc. How’s that for “good news”?

High energy cost has already rendered local production unfeasible and exports largely uncompetitive. Now higher input costs and more taxes will force more shutdowns and raise under- and unemployment. Wages have not increased in years – except for civil servants and parliamentarians (perks) – while inflation and bill payments have risen astronomically.

That means higher poverty going forward as middle-class households – the life and blood of a market economy – are reduced to serfs drowned in debt just to survive.

It’s not all bad for everybody, though, because these are great times for the elite; protected from the most cruel and discriminatory tax regime in the country’s history because of their position place in /proximity to the political hierarchy.

They have blatantly used this lopsided tax policy, and continue to use it, to engineer a criminal transfer of wealth to the top. But now they’ve run out of road, and they don’t realise it.

The lower income groups are in acute crisis and the middle class is already in deep recession. These unnatural parallel economies are the direct result of very prejudiced economic policies and this country’s rulers seem to have forgotten that this is the fifth highest populated country in the world, and already one of the poorest and most illiterate, and middle- and lower-income classes in crisis means millions and millions of households struggling to make ends meet. History teaches us that such combinations cause rupture in societies and contagion in markets. Our elite is sleepwalking into a nightmare. Reminds you of that famous line, “there’s none so blind as those who refuse to see”.

Copyright Business Recorder, 2024