Daily Times Editorial 29 August 2019

Deep, deep in the debt trap

The record high fiscal deficit (Rs3.45t, 8.9pc of GDP) would have – should have, at least – set off serious alarm bells in Islamabad. It means not just that the economy has not responded despite record spending as well as record borrowing but, far more importantly, also that the IMF program might already be in danger. The deficit overshot the projected target of Rs1.9t by 82pc, seriously questioning the government’s ability to deliver on key targets and already making the federal budget document irrelevant. Let’s not forget that the bailout comes with serious conditions, failure to meet which could well jeopardise future tranches.

It is particularly alarming that total revenue collection, year-on-year, is down 6.3pc in absolute terms, which shows how much the people appreciated the PTI government’s tax policy novelty. For years, rather decades, Imran Khan claimed that people would automatically start paying taxes once he ascended the throne, simply because of his personal honesty. If numbers are to be trusted, though, it seems people placed more faith in the previous government, in its last year, to the tune of Rs230b (Rs5.33t against Rs4.9t).

Since the deficit bloated, especially in the last quarter, despite a 45pc cut in the development budget, there’s already concern that the government might now be forced to present yet another mini-budget with yet more taxes to raise revenue even if just to keep the IMF money flowing. Unless the deficit is handled, there can be no hope of stabilisation. That is why the way forward is particularly tricky; because even if the government is able to somehow enhance earnings in the ongoing fiscal, it can only be on the back of exploitative taxation instead of improved production and growth.

The high-tax, high-interest rate, low spending and weak currency environment will ensure, somewhat ironically, that there is no way of increasing productivity at least in the present electoral cycle. That is because said measures will keep aggregate demand locked in a very low band, which in turn will keep investment, manufacturing, employment, wages, growth, etc, modest at best. Not, to put it mildly, the most favourable conditions for snapping out of low growth.

News from the external sector is hardly any more encouraging. Sure, they’ve made serious advances in controlling the current account, but doing so by just restricting imports and not stimulating exports has not really been known to turn out well in the medium-to-long term. Despite losing half its value over the last year and a half, the rupee rout could only push up exports by a couple of percentage points. Also, it’s not like the international Brent crude collapse didn’t help. And soon restrictions on import of machinery will translate into yet more lethargy in production and manufacturing; perhaps that explains the negative trend in large scale manufacturing already.

The best that can be expected, really, is that this government too – like all others before it – can just manage to borrow its way till the next election, at least, and fall yet deeper in the debt trap just to stay afloat. *

Wrapping up the Afghan war, finally

Any sincere movement towards ending the long, ugly Afghan war is readily appreciated – and indeed it seems that the Americans and the Taliban have all but hammered out a ceasefire deal – but all parties, Pakistan included, must be careful lest we celebrate prematurely. America and the insurgents making peace is all very fine, but why hasn’t anybody thought it wise to include the sitting Afghan government in the whole process, despite loud complaints about being left out by everybody all the way to President Ghani himself?

Most likely it was because of the Taliban’s stiff refusal to so much as recognise the government or the constitution. And, from the look of things, the Americans have become so desperate to leave Afghanistan – preferably before their own presidential elections next year where the timing of the pullout will likely have a pronounced impact on the voting – that they chose to offend the government rather than the insurgents.

That is quite surprising. After investing hundreds of billions of dollars into creating the Afghan government and trying to exterminate the Taliban for almost two decades, President Trump suddenly decided to negotiate with the Taliban and leave the government to its fate. And far too many questions now need urgent answers, especially for Pakistan, since we stand to lose the most should the western neighbour once again descend into civil war like the 90s.

What, for example, should we make of all this talk about an interim government? Are they really going to abandon the system built so painstakingly after the Taliban’s fall just because the Taliban don’t like it? And what of the people who serve the constitution and the government, especially since the insurgents have quite openly branded them traitors who sold out for American dollars? And what about issues like minority and women rights going forward since nobody has forgotten how things worked under the Taliban? Also, since the insurgents are clearly the dominant military force on the ground, even with US presence, what’s to stop them from simply imposing their will on everyone else once the Americans leave?

No doubt this war cannot end soon enough. There was no letup in the deaths even as negotiations for peace gathered pace. But everybody concerned, particularly the Americans, must ensure that there are no loose ends, especially since a lot more people can die simply because of miscalculations on part of the principal parties. *