Learn­ing to live the way we should

The Pak Banker - - Front Page - Dr Muham­mad Yaqub

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.

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