FeaturedNationalVOLUME 18 ISSUE # 15

It’s time to go beyond cosmetic austerity measures

The government has announced a series of austerity measures to reduce official expenditures so as to pave the way for the resumption of the stalled IMF loan programme worth one billion dollars. The expenditure cuts are also aimed at tackling the ongoing economic crisis as the country is facing a serious balance-of-payments problem, with the foreign exchange reserves having fallen below a three-week import cover.

Some of the decisions announced by PM Shehbaz Sharif at a press conference last week include the withdrawal of salaries, security vehicles, perks and privileges of cabinet members; a ban on the import of luxury items and official vehicles for over a year; fewer foreign visits; a ban on cabinet members’ stay in five-star hotels; only one official plot for a government employee; selling spacious houses given to government officers; the opening of government offices at 7:30am to save electricity and gas, etc.

The prime minister also announced a 15 per cut in expenses of government institutions and a reduction in non-combat expenditure of the armed forces to be formally announced by them soon.The government has also decided that no new administrative unit, tehsil, district, division and province would be carved out anywhere in the country for the next two years. At the same time a request has been sent to the chief justice of Pakistan, the chief justices of high courts and chief ministers of all four provinces to adopt similar measures. According to an estimate, the measures announced will result in savings of around Rs200 billion.

As some commentators have observed, all these decisions are in the realm of intentions and it remains to be seen how well and how quickly they are implemented. For example, the prime minister announced that all federal cabinet members, advisers and special assistants would not draw salaries and perks and privileges like use of all luxury vehicles and travel in the economy class during their domestic and foreign visits. But this is in contradiction to his previous claim that most cabinet members were serving at their own cost.

Similarly, despite announcing many times in the past, the government has not yet cut the size of the federal cabinet, which is one of the biggest in the country’s history with 85 members, including 34 federal ministers, seven ministers of state, and four advisers and 40 special assistants to the prime minister. It may also be noted in this connection that in earlier cabinet meetings, the prime minister had announced austerity measures twice, but they were not implemented. For instance, one major power-saving decision was that shops and markets would be closed at 8pm but the government could not implement the decision in the face of resistance from the business community.

Commenting on the cost-cutting measures announced by the government, some eminent economists have pointed out that they are in the nature of temporary palliatives which do not address the structural issues, including the ballooning fiscal deficit and worsening energy sector issues, that afflict our economy and because of which our government has repeatedly sought bailout packages from the IMF. .

This is not the first time the government has tried to cover up its failure to introduce the long overdue structural reforms without which the economy cannot be put on an even keel. Unfortunately, successive governments have shied away from taking long-term measures to correct distortions in the economy and instead opted for mere optics and temporary cuts in current expenditures to calm the public harried by runaway inflation as at present. In the opinion of some analysts, the new austerity measures are no more than a public relations exercise designed to convey the message to the people that the government is aware of the worsening economic situation and cares for them.

There is a consensus of opinion among experts that instead of playing to the gallery, the government should get down to tackling the long neglected task of rebuilding the economy from the base upwards. Needless to say, in the present government structure there is a lot of bloat and waste which must be eliminated forthwith. Another urgent need is to abolish around two billion dollars worth of perks like free petrol, electricity, gas and subsidized travel to high government officers and parliamentarians. Similarly, the taxation system should be gingered up to bring feudal lords and other privileged classes within the tax net. Equally important is the need to reform the energy sector and provide a new package of incentives to boost exports without which our forex reserves will remain in the danger zone. If we want to get free of the IMF stranglehold, we should go beyond rhetoric and address the real issues that bedevil our economy.