Is the crisis really over?

Farhatullah Babar believes that the economy will get worse before it gets better

Is the crisis really over?
For the umpteenth time in recent weeks, Finance Minister Asad Umar declared on Monday that the “crisis is over” while heading to Washington to finalise the “last bailout package” with the International Monetary Fund (IMF). Earlier, he had said that there were only two options: either go to the IMF or go bankrupt. It is ironic because while in opposition, he had been denouncing IMF bailout packages.

Going by the recent statements of the finance minister and other state functionaries as well as reports of the World Bank and the Asian Development Bank (ADB), it appears that the crisis is far from over and is in fact deepening by the day.

A few days ago, the finance minister publicly predicted “more trouble for another two years.” The World Bank has predicted the country’s economic growth to slump to 2.7 percent next year, the lowest in South Asia. The Asian Development Bank (ADB) has also made similar predictions.

Words by a finance minister are not taken lightly. It is said about Zaki Yamani, a former oil minister of Saudi Arabia, that when he opened his mouth, it sent the pound tumbling. “More trouble for the next two years” is a warning of an impending crisis. People are not to be faulted if they did not take this as a joke. Nor they should be blamed for panicking when the speaker of the Khyber Pakhtunkhwa Assembly advises them to eat one chapatti instead of two and when the information minister declares a “full-fledged operation against dollar hoarding” even as there is no law to arrest a person for buying dollars as an investment.
Last Friday’s meeting of the State Bank with heads of exchange companies ended inconclusively. Contrary to expectations, the State Bank did not provide dollars to stabilise the market

The damage indeed has been done well before the bailout package. While the finance minister was assuring people that the rupee will not lose further value, it plunged from Rs141 to 148 to a dollar, the second biggest drop in value since last September. The stock market also plunged several hundred points. People who wanted to buy at the official rate were simply told that it was not available.

Last Friday’s meeting of the State Bank with heads of exchange companies ended inconclusively. Contrary to expectations, the State Bank did not provide dollars to stabilise the market. It indicated further devaluation at best and free floating rupee at worst. Reportedly, the IMF has also proposed a free floating rupee to determine its own value.

Rupee depreciation is likely to continue regardless of the IMF program. The Financial Action Task Force’s sword hanging over the country can make the situation even worse.

Devaluation has made imports expensive, pushed up the cost of local production and has raised inflation to 9.4 percent, the highest in five years. The government questioned the methodology of calculating inflation. Aided by obliging ‘experts,’ the methodology indeed was changed on Monday to pretend a lower inflation figure. The government may claim lower inflation but the poor know best and remain unimpressed. Neither changing the methodology nor the IMF package will ease the burdens of the poor.

With no attempt at structural reforms so far, the tax collection base remains narrow. The revenue collection target - already missed by a whopping Rs320 billion - has forced another tax amnesty scheme. A year ago, the PTI in opposition had vehemently opposed amnesty schemes, saying that it institutionalised corruption and laughed off the clause disallowing proceeds of crime from whitening as “ridiculous and unenforceable.” The new scheme retains the same clause. Reportedly it also allows benami accounts and assets holders to whiten money by paying nominal tax. It does not matter if politicians in opposition are hounded in name of benami accounts.

The finance minister has claimed that the amnesty scheme has been introduced “on the strong demand of the business community.” However, he did not explain why the business community failed to avail this scheme last year, nor did he clarify how many people this will bring under the tax net.

The worst is yet to come and it will be felt even more severely by the public when gas and electricity prices increase and more people begin losing jobs because of the economy slowing down. Less than eight months ago, people were made a promise of five million new jobs. Today, they are losing jobs. When realities clash with promises, the result is frustration and chaos.

The social security program Ehsas is laudable but where will Rs80 billion for it will come from? With revenue targets missed, no structural reforms, costly deployment on the borders, closure of nearly a dozen air routes through Pakistani air space, imposing extra costs on travels to diverse places and ever rising spending on national security, it remains to be seen whether Ehsas is yet another false and vague promise.

Tax reforms remain an elusive dream. It has never been taken up seriously by any government and is unlikely to be addressed now by the PTI government. Why? In his remarkable book on Growth and Inequality published recently, eminent economist Hafiz Pasha has referred to Section 51 and 52 of the Second Schedule of the Income Tax Ordinance as an example of built-in inequality. It allows the army chief and corps commanders special tax treatment. Will Imran Khan change this? If not, who will believe in the equality of the taxation regime?

Last Sunday, the PM summoned the information minister and directed him to “explain to the public details of corruption of former rulers” that has stymied economic growth. With such a puerile response to economic challenges, the crisis indeed is deepening.

The writer is a former senator