The biggest challenge to the new government is debt crisis. With debt levels unacceptably high, the government is being forced to make dramatic cuts to make payments and avoid defaults. These acts of deficit cutting, reduced spending, and slashed public services are collectively called austerity measures. The first step towards austerity is to cut down on the Prime Minister's staff and the use of dozens of bulletproof vehicles. The move to abolish discretionary funds for politicians and bureaucrats will also certainly ease the burden on the national exchequer. In Pakistan, top government officials, ministers, bureaucrats and generals are known for their lavish lifestyles. They callously and ruthlessly use official vehicles for their children's school run or shopping trips for their wives, they take unnecessary foreign trips, have huge travelling allowances, throw lavish parties and live in extravagant houses.
The government must implement a ban on five-star venues for government meetings; foreign locations for conferences, exhibitions and seminars; and executive class airline tickets for officials on immediately. This would be the great step for creating a better image in public perception by saving their tax money.For austerity, PM Imran Khan should also turn massive buildings used by governors, chief ministers, ministers, bureaucrats and generals to either educational institutions or for any other services which generate revenue for the state.
In the short-term, generous public spending funded by large government deficits will stimulate economic activity and alleviate the hardship caused by recession. But in the longer term, habitual deficit spending will weaken the nation's finances, leading to a loss of confidence from creditors and higher interest rates on national debt, moreover it will place an unacceptable burden on our future generations. The end game is sovereign default and eventually completely withdrawing from credit. Hence the government effectively becomes bankrupt.The aim of austerity is to avoid conditions which lead to sovereign defaults. It paves the way for sustainable economic progress by seeking to increase confidence in the government of Pakistan and its finances. It sends a message to investors and lenders that the economy in question in not founded on an indefinite strategy of "buy now, pay later" and that there is a viable long-term plan.
Implementing austerity measures can benefit Pakistan, and also its currency, in several ways. The merits of austerity are even more striking during a debt crisis, as a nation can help push interest rates lower by getting its fiscal house in order and alleviating concerns regarding defaults on existing debts. Reducing interest rates generally helps support economic growth. More specifically, it facilitates both investment and consumption in sectors that respond to significant changes in these borrowing costs. In addition, keeping budget deficits modest can help create the perception of stability, which in turn can produce Foreign Direct Investment (FDI).
The Pakistani government is facing huge pressures on its finances due to economic mismanagement. Austerity brings around a fundamental change in economies. Over-investment and over-consumption will become under-investment and under-consumption. Once interest rates are sufficiently low for investment and consumption to take place, there will be an uptick in demand, leading to strong economic growth.Rupees don't fall from the heaven; they have to be earned here on earth. Indebted countries like Pakistan can only grow out of their debt troubles through strong economic growth; austerity measures alone cannot work. It is imperative to engage in deep structural reform to spur growth as this is the right time for the government to put the brakes on big spending.