Tough economic measures are back. Ability and capacity of the public to withstand another crisis is diminishing. Purchasing power, which had already eroded in the aftermath of corrective measures taken in 2018-19, is once again facing a free-fall. Without delving into the nitty-gritty of why belt tightening is imperative, those who are at the helm must show empathy to the losers (majority of households) rather than counting the gains of a fraction.
Candid comments regarding gains from corrective measures may very well be technically on point. But that is no way to handle strategic communication when large swathes of the population are reeling under the consequences of those very same measures. At the very least, economic policy makers and spokespersons should share the collective grief rather than rubbing it in to those already hurting. If a motorcyclist dies in an accident with a car, you don’t announce it to the family of the deceased that the car owner who survived also has vehicle insurance.
When the PTI government came to power, it was forced to unwind the policies ran by previous government (especially by those at the helm during 2013-17), and corrective measures had to be taken immediately. That was reluctantly done – and almost a year was wasted in the process. The currency depreciated, and interest rates were raised. Taxes were imposed and development spending was cut. Energy prices were revised upwards. Economy faced a slowdown and employment opportunities were reduced. As a result, purchasing power diminished significantly.
At that time, the incumbents were in the right to blame the past rulers. It faced the unenviable task of explaining to the public the immediacy of corrective measures. It faced criticism from the very same parties who had sown the seeds of the economic crisis, yet who had the audacity to bash the incumbents for trying to fix the mess. The tightening measures taken at the time were inevitable, and the objective was to protect the economy from a bigger catastrophe in the making. PTI promised to carry out long pending structural reforms, and to mend the direction of the economy before the growth paddle could once again be accelerated.
But that didn’t 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. The hope for structural reforms returned to the back burner, and the old formula of import-led growth and controlling inflation through administrative measures was revived. Although reforms to liberalize and deregulate key sectors were promised, the government instead enhanced its footprint in the food and energy supply chain.
For better or worse, the incumbents made this bed and must lie in it. The construction amnesty scheme and flat low tax rates on square foot basis spurred the real estate speculation and construction of housing for elite. The public was sold the mirage of affordable and low-cost housing. Today, the affordability is dearer for middle and lower classes – with or without mortgage.
The elites got all that they could ever wish for. Not only did they get the opportunity to whiten money in construction, but they also received concessionary finance for industrial expansion - while deploying retained profits in real estate in or outside Pakistan. Once again, the rich are becoming richer. Even now, real state tycoons are critical of increasing wages of masons and labourers, falsely blaming it for demand-pull inflation.
This is a distasteful attempt to shift the attention from the abnormal returns elites have made on the back of government’ largesse, as they conveniently forget that real wages are yet to catch up to the 2018 levels. The elite may find it hard to empathize with the predicament of the public, but they must at least not rub salt in the wounds of those who suffer.
Due to better policy steps and stroke of luck, Covid-19 didn’t hit Pakistan the same way it hit other regions. When the time of unwinding concessions had come, the PM changed his finance team. The new ministry came with a fresh zest to spur growth based on the old model. Commitments made to the IMF (International Monetary Fund) in March 2021 were completely disregarded.
These commitments were frozen by the IMF back in February 2020 in the face of a looming global economic meltdown due to pandemic. The government received the economic breather it wanted and should have used it to accelerate implementation of structural reforms once the effects of pandemic had abated. Instead, it went on to spur hollow growth. Now the reality is hitting hard. And the IMF is no longer appears to be in a mood to give concessions. Perhaps, the finance team will eventually get the reprieve it wants, at the expense of a compromised foreign policy.
At this juncture, the government officials – be at SBP (State Bank of Pakistan) or FinMin (Finance Ministry), should have the courage to speak harsh truth. Yes, the belt must be tightened again to avert crisis. Yes, global prices are no longer in Pakistan’s favour. Yes, petrol and gas prices must increase. Yes, the electricity circular debt flow must be stemmed. Yes, the currency must adjust. But the need could have been lower had the policy actions taken in recent months were not driven by short-termist agenda, and weren’t so oblivious of ground realities.
Nonetheless, here we are today. The government is taking the right steps; it is immaterial whether these are taken by choice or by force. It had the golden opportunity to tackle the mess in past 12 months, yet made conscious decisions that had the opposite effect. The finance team must face the music. It is time to undertake structural reforms, such as in real estate.
The real sufferers is the common public, which first faced belt-tightening in pre-pandemic due to macro-adjustments, and is no facing the consequences of global commodity price spiral. Acknowledge that these actions are painful. Accept that the tough measures – such as energy tariffs – could have partly been avoided had structural reforms been undertaken. Empathize with their pain, and sincerely carry out much needed reforms so the economy may truly turn a corner.
Copyright Business Recorder, 2021