Burden of adjustment.

Byline: Faisal Bari

WE are definitely moving towards some stabilisation. Fiscal and trade deficits are down, foreign exchange reserves are creeping up slowly, tax revenues have shown some growth, the exchange rate is holding steady and equity markets have had some decent activity over the past few months. Increasing import and energy tariffs, raising the interest rate, putting curbs on development and some on other expenses are biting. They have slowed down the economy and reduced some of the gaps in fiscal, foreign exchange and trade areas which were making managing the economy very difficult.

However, we are not out of the woods yet - even on stabilisation - and there are plenty of issues (debt burden, circular debt, energy pricing, state-owned enterprises, inflation, high interest rates, lack of exports, artificial import compression, narrow tax base) that need to be tackled if stabilisation is going to continue. But, for now, the government and international partners, especially the IMF, seem to be happy with the progress that has been made.

The government will have to pursue policies that limit the impact of structural adjustments.

The cost of even this precarious level of stabilisation has been high. Inflation and higher energy prices have made life for low-income families very difficult, and it has even made life for middle-income families difficult. Electricity and gas tariff hikes have upset domestic budgets significantly.

Tanvir, who works as a driver and has a salary of Rs22,000 per month, said that his electricity bill has gone up from Rs5,000 odd to about Rs8,000 on average. In addition, there are months in the height of winter and summer when the electricity bill reaches as high as Rs14,000. Tanvir has had to cut a lot of other expenditures to try to manage his budget. Some of these cuts have been on essentials; he delays going to the doctor whenever he can. And this is not the story of just a few households. The minimum wage in the country is around Rs17,000 per month. We know a lot of workers do not even earn a minimum wage in Pakistan. The adjustment for all such households has been quite significant.

With inflation of more than 10 per cent, prices of other essentials have also increased significantly. On the other hand, salary and income increases have been limited. The economy has slowed down, GDP growth is low, important sectors of the economy, like large-scale manufacturing, have registered negative growth in some...

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