IT seems like the Islamic Republic of Pakistan now stands on an economic juncture. The opening of this article might sound like yet another redundant article written by yet another op-ed writer. However, here’s why the juncture this time is a critical one.
Pakistan’s key decision-makers are currently grappling with a daunting dilemma. They have a choice to make and a choice that will decide the fate of this country for decades to come. If the above statements managed to grab your attention, the following aims to do just that: A choice between supporting the rich and maintaining status-quo or a support of even more pain infliction on the poor of this very beautiful country.
In other words, this is a juncture that allows the top order to put a bandaid on the bleeding nation or to further deepen the wounds of low taxes and high subsidies for the rich, systemic red tapping, and more inflationary pressures on the crumbling middle and lower-middle class. All social, economic, and political indicators make it evident that Pakistan is destined for more pain in the coming months.
The only thing that remains yet to be decided (or both myself and Moshraff Zaidi in his op-ed hope is yet to be decided) is who will bear the brunt ie. The rich and influential or the poor and deprived? In the previous financial year, the government of Pakistan spent a whopping RS 16.1 trillion, while its revenue was a modest RS 9.6 trillion. A difference of 6.5 trillion rupees between spending and revenue signals that the country isn’t generating sufficient revenue: a conclusion perhaps even a 6-year-old would be able to deduce.
Why? You might ask is our beloved country with so much potential not able to meet its needs sufficiently. The reasons are simple – there seems to be a neverending catered treatment offered to the affluent who are given substantial subsidies and welcomed with a plethora of low tax rates. Then, it isn’t hard to understand. When the most privileged members of society opt out of contributing to the system, a strain on the entire framework is inevitable.
Year after year, this strain becomes more severe. Year after year the country, with a begging bowl in hand, turns to seek aid from “brotherly” countries, loans from monetary organizations, and very often borrowing funds from domestic banks. Where do these banks acquire such substantial sums? You may wonder. The funds are received from the State Bank of Pakistan which simply prints more and more new money.
Recent estimations suggest that just within the last three months, a total of RS 10 trillion in fresh currency has flooded into our economy. This injection serves primarily to sustain the lavish lifestyle of the Pakistani elite! While to read, it sounds like a simple solution: need more money = print more money and keep the ball rolling. However, the implications of doing so are essentially why we economically stand where we do today and why the chances of anything improving in the coming months are bleak.
What this means is that when a country keeps borrowing money without pumping some back into the system through taxes, the future of that country hangs on a thin line. The printing of an ever-increasing stock of money is dangerous and here’s how. Simply put, when the State Bank prints more money, there is an additional amount of rupees available for the purchase of every single dollar. And then go back to Economics 101 and understand the concept of demand and supply – it seems straightforward that the dollar will go up in value whereas the rupee will depreciate.
Just two weeks ago the US dollar crossed the 1 USD: 300 PKR mark. How many rupees were printed for this to happen is something I will leave to your imagination. Of course, the above is an oversimplified version of what affects the rupee but it does give perspective. Today, the dollar stands at 1 USD: 281 PKR.
No doubt this is something that can be appreciated and applauded but it is equally important to question how such gains were achieved in such a short time. I dont mean to sound pessimistic but if all it takes to bring down the dollar by twenty rupees is a crackdown on hoarding and smuggling then I can’t help but think why such a crackdown requires those in Rawalpindi to intervene, that too in the midst of a new war on terror. What this last paragraph poses as a question is for you to dissect. Until you do so, I hope the decision-makers can put a nice big bandaid on our bleeding countrymen!
—The writer is contributing for national press, based in Islamabad.
Email: [email protected]
