Learning to live the way we should
IN almost every country, there are always those individuals who live beyond their means and then pay the price for it, while the rest of the society moves on to better lives by working hard and living frugally. There are also governments in other countries that tread on such a path for some time and then realise their mistake and tighten their belts to correct it. But Pakistan is one of the few countries where a segment of the population and all the governments and public sector institutions have been continuously living beyond their means and have not paused to ponder over the consequences.
At the individual level, the poor cannot even adequately feed their families, much less generate any savings. The upper echelons of society get trapped in overspending in an attempt to keep up with the Joneses, and engage in conspicuous consumption. Their activities become instrumental in tearing apart the moral, social and economic fabric of the society.
When we move from the individual to the government, the situation becomes worse. The provincial and federal governments, and public sector institutions, have spent extravagantly and there has been lack of revenue mobilisation effort. Living on begging and borrowing has become a routine matter for them.
The trend of spending beyond ones means at the individual and government levels has translated into worsening macroeconomic imbalances at the national level and wide gaps between saving and investment and between exports and imports and, at the government level, in a large public sector deficit. By now, these imbalances have taken on menacing proportions but we tend to forget the root cause and continue on the same path.
Instead of taking measures to reduce economic imbalances, the economic management team of the present government is engaged, on the one hand, in arranging temporary means to cover them and, on the other, in fudging the figures to make the situation look better on paper than what it actually is. The former accentuates the structural imbalances and the latter camouflages the situation. There is no realisation that the government and the country cannot live on perpetual borrowing and that manipulation of economic data may hoodwink the political leadership, and the general public but cannot stop further deterioration of the fundamentals of the economy. In the matter of saving-investment gap, the country’s saving rate has declined steadily and is by now way below its investment requirements because we have become a high consumption nation before becoming a high income one. We, as individuals, and as a country are not saving enough of our income to finance investment and depend on handouts and borrowing from others to fill the gap. It is a habit that has moral hazards and economic, social and national security consequences.
The government is the worst offender of the golden rule of living within means. Currently, there is a wide gap between what the government spends and what it collects in taxes; this translates into a large and rising budget deficit. In the beginning, the public sector did manage to contain its consumption expenditure and generated some savings which, in combination with foreign grants and borrowing, were used to finance public development expenditure. Gradually, the government began to run deficits even in its current operations and started to rely on borrowing to finance a rising part of its consumption spending in addition to all the development expenditure. By now the huge civilian and military bureaucracy is engaged in extravagant expenditure in spite of a major resource constraint and rising public debt. Despite hunger and disease among the masses, they are busy building air-conditioned and posh offices and bungalows for civil and military bureaucracy designating them as development expenditure. They throw large official parties at expensive places unmindful of the daunting poverty around them. Fleets of imported bulletproof staff cars are maintained in addition to their provision for personal use to a large number of high officials while public transportation, like the railways, is in shambles.
Our rulers employ hundreds of people to maintain their gardens, polo grounds, swimming pools, shooting galleries and entertainment facilities. They are unable to see the hungry and the homeless in the streets waiting for someone to give them leftovers to fill their empty stomachs. Ministerial bungalows are lavishly furnished and expensively maintained even if the lifestyle of their residents provokes anger and hatred by those who live in slums around them, whose minor children are compelled by circumstances to do menial work in those very residences.
Most members of parliament, national and provincial, who are supposed to set the tone of good governance by passing accountability laws, come from feudal backgrounds and show off their unearned wealth through expensive cars, luxurious bungalows and herds of servants and body guards surrounding them.
On the revenue side, the government has one of the lowest tax to GDP ratios in the world because the rich and powerful that rule the country have ensured that the tax net does not cover their pockets and estates. The big landlords, the rich business community, the entire service sector and real estate wheelers and dealers get away with not paying taxes commensurate with their incomes. The connivance of corrupt tax collectors also plays a big part in it. The rising prices that every citizen complains about on a daily basis are explained by policy makers in exogenous terms like rising world prices and natural calamities. Actually the greatest national calamity is lack of good governance that leads to lavish government spending without commensurate tax effort, and consequent printing of notes and borrowing from commercial banks. The next time the finance minister or the State Bank governor give ambiguous explanations of inflation, remind them that the budget deficit that they finance by printing notes and through borrowing is the real cause of inflation.