Sindh government is set to buy 138 double-cabin vehicles for assistant commissioners at a cost of around Rs2 billion, according to a Sept 2 Dawn article. An earlier article said that renowned economist Dr Kaiser Bengali resigned from the federal government’s high-powered committee for rightsizing because he wasn’t in favour of axing 150,000 low-grade jobs (in grade 1 to grade 16).

The same piece quoted him as saying that he had recommended abolishing 17 divisions and nearly 50 government organisations that would have reduced a substantial number of top-level jobs (in grade 20 to grade 22) and saved Rs30bn expenses per year. He implied that this recommendation was ignored.

Why can’t assistant commissioners use cheaper vehicles, particularly at a time when the Sindh government cannot take proper care of thousands of rural people who have lost all their belongings during the recent floods?

Moreover, why can’t the federal government get rid of top bureaucrats serving in those divisions and organisations, many of which have long become redundant, and instead insist on rightsizing via retrenchment of low-grade employees?

Government favouring bureaucrats over ordinary citizens in policy-making decisions is leading to social frustration and pessimism

Such questions continue to perturb ordinary Pakistanis, and when they see that the federal and provincial governments act in a manner that is biased against the lower strata of society, they become increasingly disappointed.

This disappointment grows into frustration, and it is but natural for the disappointed and frustrated souls to see the half-glass empty. Only satisfied and contended people can be expected to become optimistic enough to see the half glass full.

When inflation goes down, or the trade deficit narrows, or remittances grow, and you discuss such news among ordinary people, the only response you often draw is indifference and pessimism.

The first thing this hybrid regime can do to improve its image is to desist from taking actions or making moves that can increase people’s disappointment and frustration. That is one sure way of keeping such frustration from growing into anger and cynicism.

That said, the recent decline in annualised headline consumer inflation to 9.6 per cent in August is good news, and the government and the State Bank of Pakistan deserve some credit for this.

However, we must remember that the fall of inflation below double digits after 34 months had the blessings of the base effect, too, as inflation in August 2023 was very high — 27.4pc. Moreover, non-food inflation — more relevant for most industries and businesses — is still high at 17.4pc in urban areas and 11.9pc in rural areas.

Allowing redundant government organisations to function while rendering large numbers of low-grade employees jobless in a ‘rightsizing’ effort is counterproductive

The International Monetary Fund (IMF) has strongly objected to the Punjab government’s move to provide energy subsidies for even two months, and it has sought assurances that no province should provide a similar subsidy in future. The Fund also insists that support prices of major crops must go, and the prices of agricultural produce should be deregulated.

In that case, maintaining average headline inflation in the single digits may become difficult in the coming months — even if this objective is achieved in a single month. Average inflation in July-August 2024 was recorded at 10.4pc against 27.8pc in July-August 2023.

We must also not forget that inflation in Pakistan has started declining primarily due to demand contraction, which means there are not enough jobs for people and households, and businesses are consuming less.

Islamabad is desperately seeking approval of the $7bn, three-year IMF loan, and if the loan is approved, Pakistan will have no option but to follow a fiscal discipline programme that would keep economic growth too little in the first two years and only moderately high in the final year.

So, new job creation on a net basis will be almost impossible for this fiscal year and in the next and may become visible only in the third year, ie 2026-27.

Under these circumstances, the federal and provincial governments need to tailor austerity programmes while keeping two things in mind: the number of jobs lost amidst rightsizing should be kept to a bare minimum, and saving through such rightsizing should be as high as possible.

The policy of letting redundant divisions/government organisations continue functioning while rendering a large number of low-grade employees jobless will be counterproductive.

The State Bank of Pakistan is expected to cut interest rates after the fall in inflation, but analysts are debating the size of the possible cut. A 150-basis point cut seems possible under the current situation (with uncertainty about future movement in the international oil prices after the recent decline and with the need for greater fiscal discipline still growing).

Pakistan’s experiences in recent years have shown that inflation in the country is more of an outcome of a lack of fiscal discipline than anything else.

A growing number of economists around the world now explain inflation through fiscal theory of the price level citing cases of even developed countries like the US and UK. Members of the IMF technical teams also often cite this theory, even on occasions when there is enough room for deeper cuts in interest rates.

Published in Dawn, The Business and Finance Weekly, September 9th, 2024