Mohammad Jamil It is an irrefragable fact that an en viable leadership and a strong economy make a nation militarily strong, enabling it to guard its independence and sovereignty against a hostile neighbour, as in the case of Pakistan. The phrase, its the economy, stupid, widely used during Bill Clintons presidential campaign had sent a message to the Americans that economic strength was more important than successful military expedition by his predecessor George Bush. So far as Pakistan is concerned, its economy is in dire straits, and has faced perennial fiscal deficit, trade deficit and current account deficit since its inception. It is unfortunate that such a resourceful country has been brought to the present pass due to our directionless leadership that bartered away Pakistans sovereignty. Our failure to address the imbalances and distortions in the economy is because of our dependency syndrome - acquiescing to American demands and buckling under pressure many a time. In 1999, Governor of State Bank of Pakistan (SBP) Dr Ishrat Hussain, an ardent believer in consumption-led growth, started reducing policy discount rate and eventually brought it down to 7.5 percent in November 2002. Commercial banks lowered interests on deposits, which discouraged savings. So businessmen, industrialists, credit card holders, and those who used the car leasing facility, benefited from cheap credit. Hence, the higher-middle and opulent classes were subsidised at the cost of the masses (i.e. the middle and lower middle classes). Here it is important to mention that deficit financing in the face of huge fiscal deficit or credit cards schemes are tantamount to creating money. Since 2008, the State Bank has once again started increasing the discount rate; and in January 2010, it has increased from 12 to 14 percent, which is being done to reduce the aggregate demand to curb inflation. However, increase in the interest rate is not likely to help reduce the present double-digit inflation, which is due to cost-push inflation and not demand-pull inflation. In fact, the situation is that of stagflation - a condition of slow economic growth and relatively high unemployment accompanied price hikes, or inflation. With the rising prices of petroleum products, the cost of transportation also increases, placing additional burden on the consumers. In order to fight cost-push inflation, measures should be adopted to reduce the cost of production. Actually, what is required is the lowering of interest rate and rationalisation of electricity and gas tariffs. The argument that the government has little choice due to the growing fiscal deficit, except to force the bank to print new money to cover its expenditure on security, debt servicing/repayment and subsidies, is without substance because the major problem is that the rich and powerful do not pay their taxes. It is therefore imperative for the government to not only raise its revenues by directly taxing the rich and powerful, but also to check tax evasion and drastically cut its expenditure for fiscal consolidation. In fact, Pakistans problem has exacerbated due to the reckless spending of the government. Apart from the profligacy of the ruling elite, losses to the public sector organisations, due to mismanagement and corruption, are reasons for the present dismal situation. The fiscal, trade and the current account deficit have indeed forced the government to seek the International Monetary Funds (IMF) loans, but its conditionality to enhance electricity rates has proved to be self-destructive. On the one hand, our industry is becoming uncompetitive in the world market, while on the other, together with food inflation, it is eroding the income of salaried classes. Although the government is poised to increase electricity tariff by 2 percent on a monthly basis during the next six months, its failure to reach consensus on the Reformed General Sales Tax (RGST) is the reason that IMF is not likely to issue the next loan tranche. The government has hinted at seeking a three-month extension in $11.3 billion standby arrangement from the IMF because of legislative delays in the implementation of RGST. As a matter of fact, the 24-month IMF programme, under which about $7.8 billion has already been disbursed to Pakistan, is due to expire on December 31. It is well known that direct tax, i.e. Income Tax, is a social equaliser, as it legally transfers funds from the wealthy to the poor in the form of social services provided by the government, while indirect taxation through general sales tax (GST), and other inflationary measures like increase in the petroleum prices, hurts the low and middle income people. An increase in the cost of inputs results in cost-push inflation, which produces a multiplier effect on general price level. Apart from adding to the suffering of the people, Pakistani products have become uncompetitive in the international market. Nevertheless, the major cause of the fiscal deficit is tax evasion in the formal sector, which is said to be Rs400 billion per year. The informal sector (not in the tax net) is 50 percent of the formal sector, and thus there is tax evasion of at least Rs600 billion per year. Reportedly, public sector corporations like the PIA, Pakistan Steel Mills, etc, make losses to the tune of Rs300 billion per year. Also, it is unfortunate that the government has appointed its cronies to head the Oil and Gas Development Corporation (OGDC), and other public sector organisations, rather than making appointments on merit in order to financially help them. Unluckily, the tax ratio to the GDP in Pakistan is only 9 percent - the lowest in the world, even less than Bangladesh and Sri Lanka. However, the major problem is who will bring the jagirdars and industrialists in the tax net when they are sitting in the Assemblies and the Cabinet? It is ironical that despite financial constraints, two more federal ministers have been inducted in the Cabinet raising the number to 90. A federal minister costs the national exchequer Rs30 lakhs per month, comprising his salary, huge perks like house rent, medical expenses, telephones bills, cars, etc. In addition to the above, salaries of the 342 members of National Assembly, 100 Senators, and about 700 members of Provincial Assemblies, who also get daily allowances and boarding and lodging when the assemblies are in session, make a colossal amount. Therefore, I suggest that since most of the parliamentarians belong to the feudal class, they should not withdraw their salaries and perks at least for the remaining period of their tenures. Anyhow, there should be zero-tolerance for corruption, and all corrupt elements should be prosecuted irrespective of their position or affiliation. But who will do it when a majority of these elements are parliamentarians, is big question. The writer is a freelance columnist.