Finance minister Hafeez Shaikh is a worried man. And he tries to get your attention by trying to explain better how bad things really are. If the reforms agenda is not pursued promptly, he warns, we could have a deficit as high as 8 per cent on our hands. The problem here is that no one knows what that actually means. The mass media’s attention deficit disorder precludes any measure of hitting-the-books and figuring things out. Reporting from the gut yields only one approach for our journalists: trash the government. And in this particular case, that won’t be too hard. The budget deficit is getting too large? Well, it’s all on this government’s watch, isn’t it?Yes and no. The deficit had really started to swell under the previous government’s stewardship. Despite having passed a fiscal responsibility act through parliament, the Shaukat Aziz team could not rein in the deficit to the required percentage of the GDP, what to say of the stipulated decrease every successive year. That doesn’t, in any way, mean to absolve the incumbents but consider certain realities about the tough spot they are in. The budget deficit is the difference between two figures, the expenditures and receipts. The media and the opposition is focused a little too much on the former and not enough on the latter. Therefore, public discourse all boils down to bullet-proof cars (they really don’t cost that much, in the larger scheme of things) and not enough on the necessity of imposing taxes like the RGST. In fact, on the expenditures side, talk of cutting down on the ones that are absolutely unsustainable, like the large subsidies, is hugely unpopular. The opposition insists for the government to create a buffer to soften the blow of the international oil prices – that costs a packet – and yet bemoans the deficit at the same time.
Inflation features heavily into discussions on the economy on TV. It is paired together with the petrol prices. Little does the commentariat know that a continuation of the POL subsidies is going to contribute vastly to a fiscal deficit. That deficit is going to have to be financed by borrowing from the central bank. Which will lend by printing more currency notes. Which will lead to inflation. The feared eight percent is going to be quite devastating for prices. Paying that little bit extra to the bus conductor would definitely smart, but it will pale in comparison to the sort of general price hike that is imminent if we don’t drop the POL subsidies. To state the obvious we can’t blame the government of economic mismanagement until we let them manage the economy – PT
