Asad Umar checks Pakistan into a financial rehab clinic – M Bilal Lakhani
Heroin is to drug addicts what foreign exchange (read dollars) is to Pakistan’s economy right now. When a drug addict enters a rehabilitation clinic,
he often perceives the doctor as the enemy, stripping away the addict’s ability to experience joy in life. Asad Umar is in a similar position with the Pakistani people, as he weans us off debt and expensive imports. In this case, like the addict, it’s easier for us to fight the doctor instead of the disease. The irony is that the doctor only has one goal at heart: to make the patient feel better and live life to its fullest.
Asad Umar has emerged from whatever rock or container he was hiding under by presenting the mini-budget last week. His silence on a substantive economic policy in the first few days of government was confusing because he’s never been short of opinions while in the opposition. But it seems like Asad has taken the first few weeks in government to digest the enormity of economic challenges in front of him.
Let us assume Pakistan is a family with 100 rupees of expenditure every month. We spend around 36 rupees on interest payments and another 18 rupees on defence. Our monthly income is around 80 rupees so we still borrow 20 rupees a month to make ends meet. I O W : 67.5% of earnings for Debt Servicing and Defence leading to further Borrowing of 25% of the Original Received in the Budget!
Asad’s mini-budget attempts to be pro-poor, pro-exporters (read industrialists) and tries to bring down the import bill in this challenging fiscal landscape. Yes,
it hurts to have income taxes raised but the lowest income workers have been protected (and should continue to be protected by reducing indirect taxes).
Gas and electricity prices have also been raised independent of the budget. While all of this sounds like Purana Pakistan, it’s actually good for the country. Asad has a thankless job at the moment but he’s doing the right thing. Much like a doctor forcing a drug addict to kick the habit,
the next few months will be painful but Asad has taken the courageous way forward versus giving in to knee-jerk populist policies.
The
only place where Asad deserves across-the-board criticism is for allowing non-filers to purchase real estate and cars. This is a step backwards and signals potential
capture of the government by vested interests. The apparent reason — allowing overseas Pakistanis to make purchases — could have had other workarounds (hello NICOP). The energy and excitement going into raising funds for dams could have been channelled into getting Pakistanis to file taxes so we don’t have to beg every time the government needs money. For the first time, arguably in Pakistan’s history, people actually trust the government with their tax money. Now would be the time for a fresh start and encouraging people to pay and file taxes. The only way to break free from debt is to live within our means.
Going to China or Saudi Arabia to avoid the IMF doesn’t cure our debt problem, it only masks the symptoms long enough for the problem to get worse.
The other critique of Asad Umar’s economic announcements has been how uninspiring and inside the box it’s been. This is true but partly unfair because of the state of the economy he inherited. One cannot expect a drug addict to find a job before he reforms his behaviour. It’s like saying a drug addict should just flip a switch and turn around his life. It’s not that easy.
Incredible, short-term pain is about to hit the Pakistani public if we want to get our finances in order and chart a path for growth.
Subsidies on utilities will have to be eliminated slowly. A culture of tax paying will have to be nurtured. Jobs will have to be lost at public-sector companies to manage their haemorrhaging budgets. Once these interventions are made, we can move faster on our path to growth. The
problem with Pakistan’s finances is that we always come to the brink and get saved by someone. If the drug addict is always rescued by family and never has his rock bottom moment of vomiting on the toilet floor trying to flush out his over- dose, the desire to change doesn’t come from within. The desire for change becomes circumstantial.
It’s important for leaders like Imran and Asad, who have the political and moral capital of being ‘clean’, t
o nurture a desire for genuine economic change in the country that is painful but worthwhile. If they don’t take the time to explain this to the Pakistani public,
their reform plan will not have the political capital to sustain itself. It’s time to flush the addiction to debt and living beyond our means from Pakistan. That is the only path to foreign policy independence and sustainable economic growth.
Cheers
Has Been Recycled Many Times Before As Well !