In a desperate attempt to save the country from bankruptcy, Shehbaz Sharif’s government just announced a new slew of austerity measures. The proposals include a withdrawal of salaries for the prime minister and his cabinet of wealthy ministers, along with a 15% cut in the expenses of all government departments. Government functionaries have also been required to pay for their utilities.
While these measures may look like a step in the right direction to the untrained eye, they are largely cosmetic and barely scratch the surface of what is needed to pull Pakistan out of the perils of economic dysfunction. Most of these measures have been restricted to federal ministers which makes no sense considering a large proportion of government officials hold office in provinces instead of the federal government. If Sharif is really committed to cutting down expenditures, provincial authorities must be included within the mandate of his new scheme. Let’s not forget that there are countless other government-financed bodies such as the military and judiciary and state-owned enterprises such as the railway and the steel mill that are not subject to the terms of these proposals.
Instead of stimulating the economy and improving possibilities for macroeconomic growth, Sharif’s administration has opted for slashing spending instead. In a slack economy, austerity, whether in the form of tax hikes or cuts in government spending, reduces gross domestic product by more than the size of its cuts. A failure to stimulate the economy in times of recession has irreversible consequences, especially in crisis-prone countries such as Pakistan.
The short-term is not independent of the long-term; the austerity prescription does little to address the structural problems that underlie Pakistan’s economy; problems of corruption, policymaking, governance and a weak industrial base against a steadily mounting account deficit. Fiscal consolidation is not the magic wand many hoped it would be-it might even push us into a prolonged recession and for many, an unceasing cycle of austerity-induced recession and recession-induced fiscal derailment. Very little has been achieved with regards to privatisation, the closure of redundant public bodies and public sector downsizing. Taking away a few people’s salaries hardly constitutes the structural adjustments Pakistan’s economy needs to survive and is unlikely to pull us out of the perils of economic dysfunction. *
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