News Analysis |
Prime Minister Imran Khan in his maiden speech to the nation envisioned the austerity drive and opted to start the spending cuts from the PM House. PM announced that all the governor and Chief Minister houses along with the other top officials in bureaucracy will bring in sweeping austerity measures across Pakistan. The eminent economist and former governor State Bank of Pakistan Dr. Ishrat Hussain will head the Task Force to formulate a strategy in this regard to ensure the austerity measures in all departments.
Austerity campaign will start by selling PM’s fleet of bulletproof cars worth billions. Khan’s austerity drive matters in a country marred with huge corruption in the government departments and reliance on foreign debt and aid. Since Khan’s maiden address as a PM primarily talks about breaking the begging bowl and self-reliance, it is exceedingly important for the country of 208 million to stop lavish spending and review spending habits in government circles.
The IMF measures can have a negative impact on short-term GDP, which may prompt an uproar against Khan’s credential to lead the country.
The efforts of the PM are commendable in this regard as Pakistan prepares for an austerity drive to reduce the huge debt pile left by the previous regime. Besides, the government will also have to reduce spending on development projects to bridge the huge financing gap of $25 billion, this fiscal year. Government is in a desperate situation to enact potentially unpopular spending cuts.
The government will have to face the wrath of the public, especially, if the negotiation with the International Monetary Fund forces government to raise taxes to help repair the government’s balance sheet. With currency reserves hovering around $10 billion, short-term liabilities of $8 billion and a budget deficit of 7%, Pakistan’s economy is in financial crises.
The new government will have to consult multiple creditors including China, Kingdom of Saudi Arabia and IMF to finance the deficit. If Pakistan goes to IMF, the incoming-loans will have some conditions attached to it. IMF will push Pakistan to enforce more austerity measures which may include raising electricity tariffs, and taxes and reducing the subsidies.
There is no denying that return to IMF looks more probable now, and despite the Khan’s austerity drive which may find some appraisal among the masses. It is going to be a very difficult ride for Khan’s government in its first year. The IMF measures can have a negative impact on short-term GDP, which may prompt an uproar against Khan’s credential to lead the country.
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Since Khan will have to compromise on some of his campaign trail pledges, it may tarnish his reputation as a messiah of a common man. Khan must come up with the strategy to ward off the potential setbacks which look imminent given the state of this fragile economy.