Getting Out of the Woods

The government must practice austerity on the one hand but it must also widen the tax base.
It is unable to do so under its present tax collection arm and needs to introduce drastic
measures to reform the Federal Board of Revenue and other allied organizations.

By Khawaja Amer | October 2020

The PTI-led government, after it took power some two years ago, announced that it would practice austerity to steer the economy out of choppy waters. But the government was left with no choice but to bring in large amounts of foreign money in the form of aid and loans to inject some blood into Pakistan’s anaemic economy. Therefore, it is either difficult or premature to say how much of the austerity measures have helped the economy to come out of the woods. But then, can austerity measures really help in solving the economic crisis of that magnitude, further multiplied by the Covid-19 pandemic --- a crisis that will have long-term implications for Pakistan’s economy. But one thing is clear that austerity without measures to generate more revenue is of no use.

John Maynard Keynes, the well known British economist, said, “The boom, not the slump, is the right time for austerity at the Treasury. Paul Krugman, a noted American economist, argues that since a government is not like a household, reductions in government spending during economic downturns worsen the crisis. Imran Khan’s austerity measures can be termed as simple household solutions for big and complicated problems of a Third World country like Pakistan. His austerity measures kicked off with the auction of buffaloes and surplus luxury vehicles belonging to the PM house. The buffalos fetched over Rs2 million while the vehicles some Rs200 million. There are a number of other measures also which include cabinet meetings without refreshments, etc. These can be termed as misplaced priorities for positive change in revitalizing the economy and this can only come from sound GDP through active participation and meaningful contribution of the business community.

Economists believe that austerity implies a cut in government spending during a period of weak economic growth. It is a deflationary fiscal policy, associated with lower rates of economic growth and higher unemployment. This leads to lower tax revenue and can offset the improvement from spending cuts. As such what is needed is to restructure the economic foundations of the country and chart a new path forward. Imran Khan has always talked about transforming Pakistan and charting a new course ahead which can only be achieved by introducing creative and bold policy measures - not just taking small austerity measures. Hence, one can safely say that our finance managers have failed to come out with bolder and more creative approaches to take the economy out of the woods.

However, one must appreciate a major cut in the personal budget of the Prime Minister and his Secretariat. The budget documents show that the total budget of the Prime Minister including “internal and public” is Rs.863.00 million, down from the Rs1.04 billion expenses incurred in the outgoing fiscal year. There are also reductions under almost all the heads and the employees. The related expenditures of the Prime Minister House is Rs.686.84 million against Rs.752.81 million incurred in the last fiscal year, whereas the approved budget of pay and allowances of the Prime Minister’s Office for 2019-20 was Rs879.43 million. At the same time the operating expenses of the Prime Minister Office in the outgoing fiscal was Rs.212.49 million which has been reduced to Rs.127.89 million for 2020-21.

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