The federal government has decided to step up its efforts to improve the country’s deteriorating economy, taking the decision to constitute the “Economic Security Council” (ESC).
According to an electronic media report, the council will be made up of civil and military leadership.
The council will be headed by Prime Minister Imran Khan, with Chief of Army Staff General Qamar Javed Bajwa and the finance secretary serving as council members.
Three more members will be added to the council.
The ESC will oversee economic policies and international agreements, the report added.
Adviser to the Prime Minister on Finance Dr Hafeez Shaikh could not be contacted for comment as of the time of this report.
Finance ministry spokesperson Khaqan Najeeb could not be reached either.
Meanwhile, amidst all the twists and turns in the lively political and extra-political theatre of Pakistan, the common man, already stressed out, is struggling to make sense of how the changes proposed in the budget will play out for him and family.
There might be some confusion about the details, but what is beyond doubt is the necessity of making adjustments in spending patterns to deal with the challenge of mounting financial insecurities.
With the economy heading south and the inflation moving north, the citizenry is, and will remain, under pressure in the foreseeable future.
This much is what the common man does understand regardless of what the government or the experts say.
On their part, there are experts who defend the Pakistan Tehreek-e-Insaf (PTI) government’s focus on book balancing because of acute financial woes threatening the nation’s economic viability.
For the common man, with limited knowledge of economic jargon, the litmus test to evaluate a budget is simple; the personal prism.
The budget is “good” if it improves his well-being, and “bad” if it is detrimental to his interests.
A national budget can directly improve the welfare of people through wage increase, reduction in taxes or by offering subsidies. Indirectly, price controls, particularly for essentials and utilities, help too.
In the current budget the government appears to be making some effort to shield the poorest of the poor by increasing the minimum wage from Rs16,500 to Rs17,500, announcing a 10% pay raise for grade 1-16 public-sector employees and pensioners, increasing allocation for cash transfers under the Benazir Income Support Programme, and issuing a promise to protect those on the lowest economic rung from tariff adjustment of utilities.
The poor, however, will be equally exposed to the vagaries of price fluctuations triggered by indirect taxes.
If implemented, the 2019-20 budget will render the tax regime of the country more regressive, by increasing the ratio of indirect taxes to 60%, from 55% in the 2018-19 fiscal year.
Though the leader of the government’s finance team insists that the rich will bear the brunt of revenue-generation measures, the pain will probably be most crippling for the middle class.
The rich, Dr Hafeez Shaikh has said, despite their dismay have been asked to contribute fairly to the national kitty.
He was referring to the increase in the tax rate of higher income slabs and the withdrawal of exemptions and subsidies for businesses that are no longer affordable for the government.
There is little doubt that the rich may end up paying more than before.
It will be unpleasant but it will not compromise their families’ basic well-being.
For the salaried families, however, every rupee counts.
This segment aspires for upward mobility and is sensitive to the perception of social standing.
They often own some land or a flat, or live in a rented place.
They pay for amenities and are inclined to make sacrifices for reasonable, if not decent, education for their children.
Chasing their dreams, they often stretch the family budget thin and are bereft of any financial cushion to absorb an economic shock as big as projected in the current budget.
These proposed steps will push them to the brink and put skills of homemakers around the country to test as they are challenged to deliver the impossible, to cover more with less.
According to background research, the middle class families will be forced to reshuffle their spending priorities.
To make ends meet, the composition of the family budget might change drastically.
The higher cost of edibles will hike the kitchen budget or the quality of the food intake will be compromised.
Collectively, the kitchen, transport, utility charges and tax bill will consume make up a higher ratio (60-65%) of the family income now.
Rent is unavoidable, and consumes at least 20% of the income of young parents.
With less money in the pocket, even if families choose not to switch schools, they might cut corners by pulling children out of, say, tuitions.
There is little room for savings or financing durables in the immediate future.
As such, it should not be surprising if the number of loan-seekers and bank defaulters increases in the years ahead.
Rising inflation and higher taxes will squeeze both nominal and real income of all tiers of the middle class.
The massive depreciation of the rupee has already eroded the value of fixed and liquid assets, depriving the middle class of whatever little comfort they drew from the worth of their holdings.
The dip in the growth rate is already massive; from 5.4% in fiscal year 2017-18 (FY18) to 3.3% in the outgoing FY 2018-19 (FY19).
Going forward, the government’s projection of growth rate of 2.4% in Fiscal year 2019-20 (FY20) in a country where the population is growing by over 2% means practically no growth.
By the looks of it, any reversal in the trend of falling wages and shrinking job market is beyond the realm of possibility in the short-to-middle term.
Besides, the steep hike in the interest rate to 12.25% by the State Bank of Pakistan (SBP) has increased the cost of credit that might add to factors that dissuade the prospective private investors from starting and expanding businesses.
What does it mean for wages and job opportunities?
Currently, inflation at 7% is already almost double of what it was in FY18.
With expected jump in gasoline and utility prices (power and gas) the government forecast suggests a price hike almost double the current rate, to 12-13%, over the course of the next year.
It will slash the purchasing power of the nominal wage by the same percentage.
So, with the same household income, the family will be able to buy 12% less than before.
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