ISLAMABAD   -   The federal budget 2019-2020 and the government’s stabilisation policy will have disastrous consequences for Pakistan’s middle income class, which is expected to face a 40 percent compression in disposable income as taxes, inflation, and unemployment increases, speakers said on Friday.

Jinnah Institute held a policy round table discussion under the title of ‘Austerity Budget: Assessing the Impact on Development and Pro-poor Growth’. Former member of the PM’s Economic Advisory Council Sakib Sherani shared Pakistan’s macro-economic indicators, highlighting the accumulated financing gap over the previous year. He shared that rising current account deficit and overvalued rupee resulted in a debt trap. “Stabilisation is a necessary condition, but not a sufficient condition,” he stated, adding that the only way out for Pakistan from the severe currency crisis at the moment is through pursuing stabilisation.

He stated that Pakistan’s exports were not only the lowest among all emerging markets at 8 percent; they continue to shrink. Overvaluation of the rupee over the last 5 years meant that Pakistan ran a huge current account deficit; the largest in all emerging markets. Rupee has been falling because of external financing gap was over $23 billion in 2018, he said.

Dr Faisal Bari, academic and member of the PM’s Economic Advisory Council, said that the government was underestimating the consequences of the Budget 2019-2020. Jobs are vanishing, inflation is hitting people very hard, and utility prices are pushing people in debt, he said.

There is absolutely no guarantee that 3 years of pursuing stabilisation policies will yield any benefits or lead to a growth path. Pakistan needs over 7 percent sustainable growth but there is no vision for growth, government after governmental tenure, he said.

He stressed that ‘citizens enduring pain’ for stabilisation should mean that some relief will be afforded to them eventually, but the level of competence to bring about systemic overhauls across the system leaves little room for optimism. In the meanwhile, people will continue to endure pain caused by vicious cycles of stabilization that outrun the government’s term.

Dr Ijaz Nabi, member of the Economic Advisory Council, also drew attention to the economy’s structural problems that create inconsistent growth patterns, regular trends of regression after momentary stabilization. Dr. Nabi recalled moments in Pakistan’s economic history where the rupee had crashed but the economy found other ways of bouncing back. He stated that without addressing economic fundamentals, such as gross systemic inefficiencies across institutions, there is little chance that governments will be able to break out of the stabilization-bankruptcy-stabilization rut that they find themselves in.

Former BoI chairman Haroon Sharif observed that both the budget and broader economic policy send negative signals to investors and citizens alike, that Pakistan does not have a medium or long term strategy or vision.

Business interests dictate the drafting of budgets whose review process is poor and there is clear elite capture over budgetary approvals. The allocations made for social protection reflect the intention to undertake ‘corporate social responsibility’ for governments, encouraged by IFIs, based on some evidence of benefit for the poor.

He stated that decision makers must consider the strategic opportunities available to Pakistan provided through CPEC to think about how Pakistan can grow, in which sectors, and with what investments in human capital.