A nation adrift

Budget 2024-25 plans an increase of Rs5,563 billion or 45.4 per cent in the total revenues, representing the highest-ever increase in the overall burden of taxes and levies on the people both in absolute and percentage terms.

This will severely hurt the economy across all sectors and the GDP growth could fall to less than 2.0 per cent with average incomes falling for 90 per cent of the people both in nominal and real terms.

Pakistan has lost a decade to bitter and polarizing political conflicts and poor governance. The economy has suffered and the working classes have been hit hard. Anybody who can seems to be leaving the country. The number of workers leaving the country to work abroad rose from 225,213 in 2020 to 862,625 in 2023, or more than double the average of 403,619 during 2017-2021. The exodus of workers might accelerate due to the additional burden of taxes and soaring electricity bills.

The claims of economic growth by the PML-N and PTI are not grounded in reality or supported by hard facts. Growth has been volatile and uneven across social classes as these parties presided over record current account deficits, stagnant tax revenues and as a consequence, a steady rise in government borrowings, for which people are paying a heavy price through falling real incomes and higher cost of living.

Pakistan is slowly getting de-industrialized. The share of the livestock sector in the economy is rising, manufacturing is in decline, and the low-skilled services sector underpinned by largely a consumption-oriented economy (supported by remittances from overseas) characterizes the economy of what may rightly be described as the sick man of Asia.

The budget’s only purpose seemed to be to satisfy the IMF’s demands to get approval for a new loan. It included a few steps in the right direction, like the withdrawal of certain exemptions for the real estate sector, but it was, overall, a loss of a historic opportunity to set the stage for much-needed structural reforms.

Pakistan’s governing elites did not learn any lessons from the 2022-23 economic crisis, which took the country to the brink of bankruptcy. Despite the rhetoric, their refusal to take concrete steps to reform a rent-seeking economy is shocking because they have the most to lose.

In 1991, India was under the IMF programme under a standby arrangement of $2.2 billion. Yet, on July 24, 1991 India’s finance minister Manmohan Singh cut the government expenditures by Rs1538 crores (5.0 per cent) to Rs28,073 crores, in his historic budget speech. Pakistan is currently under a $3 billion standby loan programme and committed to reducing the fiscal deficit. Yet, the government announced a 22.8 per cent increase in the total government spending as the defence, pensions, and civilian government expenditures combined are projected to go up from Rs3.3 trillion to Rs4.1 trillion.

Speaking at a press conference after the budget, Finance Minister Muhammad Aurangzeb said, “Schools, universities and hospitals can function with charity and philanthropy. Countries can only function with taxes.” He could have added that countries cannot progress with an unjust tax system that offers few incentives to invest.

The federal government’s pension bill is projected to cross Rs1 trillion or $3.5 billion during the next financial year. Senior civil and military officials also get plots of land at extremely generous prices during service and sometimes upon retirement. They also enjoy tax-free pensions and other perks at the cost of 90 per cent who struggle to earn a decent living.

The fiscal deficit can be reduced easily by cutting government spending, withdrawing some of the Rs3.9 trillion in subsidies that benefit mainly the elites, and expanding the tax net with a focus on high-income groups provided there is a serious intent to do so. However, they refuse to walk the talk.

On top of the Rs4 trillion federal government spending, the budget projects a staggering Rs9.8 trillion (2023: Rs8.2 trillion or 7.7 per cent of the GDP) to be paid in debt servicing. Yet, it doesn’t seem to have any plan to reduce the federal government debt which stood at around $267 billion in April 2024 and increased at $2.3 billion a month from July 2023 to April 2024. The debt servicing cost climbed from 54 per cent of net federal revenues in 2014 to 121 per cent in 2024.

The elitist economic policies have contributed to rising income equality. According to the World Inequality Database, the top 10 per cent of Pakistani households earn 43.94 per cent of the country’s income, while the share of the bottom 50 per cent is only 16.25 per cent. Parliamentarians, top civilian and military bureaucrats are part of the top 10 per cent.

The data implies that the average per capita income of the top 10 per cent group is 4.4 times the average of the middle 40 per cent and 13.5 times the average of the bottom 50 per cent of the population. Policymakers seem to be living in a bubble, unmindful of the ground realities and simmering anger in an increasingly radicalized population suffering from the double whammy of double-digit inflation and falling real incomes.

The country’s economic problems are rooted in not just political instability and bad governance. One major reason for the lack of foreign investors’ interest in Pakistan is that it is widely viewed as an unstable country with a large, mostly unskilled and extremist, young population whose median age is just nineteen.

Religious fanaticism and populist fascism combined with politically expedient state policies have played havoc with the social fabric of society. Widespread intolerance and bigotry in the backdrop of the rise of ahistorical, culturally barren, and poorly educated generations are turning large segments of society into lynch mobs who threaten to take the country backwards as it continues its seemingly inexorable march toward self-annihilation while its top leadership seems to be lost and obsessed with debilitating power games.

The writer is former head of Citigroup’s emerging markets

investments and author of ‘The Gathering Storm’.