Austerity by the rich

Another austerity drive is on the cards as Pakistan tries to strike an agreement with the IMF for the release of a $1.2 billion tranche. The country desperately needs the IMF aid to stabilize its fast depleting foreign reserves and avoid sovereign default. The foreign exchange reserves held by the State Bank of Pakistan (SBP) have touched an historic low of $2.9 billion, making the country face a severe shortage of dollars.

The IMF delegation has shared the memorandum of economic and financial policies (MEFP) with Pakistani officials after several rounds of tough negotiations. Both sides are expected to sign a staff-level agreement (SLA) in the coming days.

The MEFP is a key document that describes all the conditions, steps and policy measures to be implemented to get a bailout package. Pakistan has agreed to take steps and measures to reduce expenditures and increase revenue. It has also agreed to impose additional taxes through a mini-budget, taking steps to erase circular debt for the energy sector. This will include an increase in electricity and gas tariffs and in the policy rate.

The ongoing economic crisis has intensified despite tall claims by the economic managers of the coalition government that everything is under control. The bleak situation has forced the government to accept the harshest conditions of the IMF, which are likely to hit the working and middle classes the hardest. Energy will become more expensive and food inflation is likely to rise to new historic heights.

Instead of taking the difficult decision to tax the wealth of the rich and bring the wealthy into the tax net, the government has decided to choose the easy road of taxing the poor. The people of Pakistan are once again going to pay the price of the crisis that was never caused by them.

The present financial crisis is a result of the flawed economic policies imposed by the ruling elite to protect their economic and class interests. It is caused by the failed policies of neoliberalism and free market. The ruling elite is responsible for the sorry situation we are in, but the working class will pay the ultimate price.

Pakistan has agreed to impose Rs170 billion worth of taxes. The government will further increase diesel prices in March and April to achieve the target of petroleum development levy on diesel to Rs50 per litre. The government will also drastically cut the annual development budget. The IMF is demanding a significant increase in the prices of gas and electricity as soon as possible.

To fulfill the IMF condition, the government has already dropped the petrol bomb on the people with a Rs35 per litre increase in one go. This has come at a time when Pakistanis are already facing the historic-high inflation of more than 27 per cent. The proposed measures will add more economic pain and misery for the people.

The coalition government has failed to provide much-needed relief to ordinary people. And instead of reviving the economy through radical reforms, the government has decided to burden the lower middle and working classes even more, forcing people to keep on paying for the failures and mistakes of the ruling classes.

Austerity is not the solution to severe problems like poverty, unemployment, falling incomes and rising prices. The austerity policy was introduced as part of the neoliberal economic order that was established in the 1980s. The neoliberal economic model was an ideological drive to the “biggest and most dramatic redistribution of power and wealth” from the state to billionaires and from working and middle-class people to the super rich. Austerity was a key component of this economic model. This was a successful model for the rich but an utter failure for ordinary people.

Austerity was meant to reduce the budget deficits and cut expenses like social spending and subsidies. The declared aim of austerity was to lower the debt burden and to bridge the gap between state expenditures and incomes.

But austerity failed to lower the debt levels or reduce the budget deficits around the world. It was presented as a system that was desperately needed to rescue the economy. The elites promised that austerity would lay the foundations for a more prosperous future for ordinary people.

But this policy led to the poor paying the price for the rich. The ruling elites always ensure that ordinary people bear the brunt of all crises. The ruling classes use the crisis and deficits as an excuse to slash benefits and public services and transfer more money from the poor to the rich.

Through austerity drives, governments cut spending on welfare, benefits, road maintenance, libraries, public housing, public education, health and other public services.

Austerity cannot lead to economic growth either. Economic recovery from the 2008-09 great recession was the slowest it had been for any recession in the post-war period. And because of cuts, plummeting living conditions and falling real-term wages, worker productivity did not rise fast enough for those in power.

Also, austerity measures lead to higher prices for goods and services, which make it more difficult for the poor to afford basic necessities. Austerity increases the levels of inequality as those with higher incomes are more able to withstand the impacts of austerity measures than those with lower incomes.

These ‘austerity for the rich’ programmes have been an abysmal failure. They have widened the gap between the rich and the poor, and done little to boost the economy or create jobs. The Pakistan government must abandon its attempts at failed austerity measures and invest in public services if it wants to build a strong, inclusive and sustainable economy.

The writer is a freelance journalist.