Editorial
The spillover effects of low growth and high inflation are becoming more apparent in Pakistan, as over 10 million individuals in the country face the looming threat of falling into poverty, according to the World Bank. This is a direct result of stubborn inflation rates in the 25-30 per cent range coupled with sluggish growth rates of 1.8 per cent. The Bank’s biannual Pakistan Development Outlook predicts a missed macroeconomic target for the country, but this is not surprising, as there have been few instances of finance managers meeting important budget targets in previous years.
Unfortunately, the country will fall short of its primary budget target yet again, meaning that it will remain in deficit for the third consecutive year despite the International Monetary Fund’s (IMF) demand for a surplus. This deficit could become a significant issue during talks for an Extended Fund Facility (EFF) following the Stand-By Arrangement (SBA), leading to even harsher upfront conditions that the IMF is now fond of, which could force Pakistan to fall in line quickly.
The poverty rate in Pakistan is already at around 40 percent, and the World Bank’s recent warning of another 10 million people at risk of falling below the poverty line suggests that things could get worse soon. The government does not have fiscal space for any pro-poor subsidies or programs, at least not while it needs an active IMF program to maintain debt rollovers and manage the threat of default.
Furthermore, the taxation system in the country is severely lopsided, completely exempting the elite from making any meaningful contribution to the exchequer and relying instead on indirect taxes that squeeze the poor more than the rich. This could mean that the Bank’s next Development Outlook could paint an even more alarming picture of Pakistan’s poor and poverty trends.
There is little indication that growth will improve, and with the prices of utilities increasing again, cost-push inflation could undo moderate decreases in prices being witnessed now. While the government appears to be a silent spectator as the poverty time bomb ticks away, there is no obvious approach to poverty alleviation.
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