THE parlous state of official finances is the result of successive governments’ unfettered extravagance and failure to mobilise adequate tax revenues. They have lived it up by mortgaging the future, wilfully abdicating their responsibility to the nation on fiscal virtue. Donor and IMF rescue packages have merely been viewed as licences for fiscal and monetary profligacy rather than a message for exercising fiscal common sense. That is why increasingly more parliamentarians of donor countries and staff of multilateral donors label us a “rogue country”.

The patience of our traditional multilateral and bilateral donors is wearing thin because of our infirmity of purpose, continued display of political timidity and erratic implementation of reforms. There is little desire to restructure the economy and society. Official efforts are geared to simply winkle the next tranche out of the granted loans, especially when it comes to the IMF. Hence, they continue to be sceptical about the Pakistani state’s ability to contain budget deficits.

They are worried that no serious attempts have been made to a) either control spending or invest in projects that will generate high economic returns or b) to document the economy and put in place appropriate institutional arrangements to collect income and sales taxes in the face of tax amnesty schemes. The dance of one step forward, one step sideways and one step backwards has only succeeded in creating an illusion of forward movement where there is none.

But when donors and the IMF demand mobilisation of more tax revenues and a reduction in expenditures to reduce the fiscal deficit they are merely restating the problem. The only effective way of resolving this perennial issue lies in mechanisms and structures which will eventually enable a change in government and leadership behaviour. These donors do not have adequate knowledge or experience of what is required to put such institutional arrangements and processes in place. The solution lies in instruments like appropriate legislation supported by institutional frameworks and mindset changes for effective enforcement through instruments of sanctions that ensure remedial actions.

Unfortunately, there are no quick economic and political fixes to problems accumulated over decades, although the time period can be shortened through political commitment; a donor dilemma, whose support is typically for a duration much too short for implementing structural reforms resisted by a selfish elite.

Culture plays an important role in societies adapting to economic reform. A state under the influence of rent-seekers cannot be expected to suddenly change course and opt for fundamental adjustments. Why should individuals/groups controlling the state suddenly stop milking it for their own good? In such an environment, threats of strict tax enforcement cannot be taken seriously, particularly if evasion has been actively encouraged historically through prohibitions on awkward questions on sources of inflows/incomes and investments. So, only ‘misguided patriots’, ‘fools’ or the helpless who receive payments after tax deductions at source, end up paying taxes.

Our fiscal crisis has also been compounded by low expenditure efficiencies, partly because of weak accountability systems and heavy leakage of resources on account of corruption. Despite the low quality of services, for instance, the 38pc rate of literacy and the high dropout rate from the primary education stream (45pc children drop out before completing the primary education cycle), substantial amounts are being absorbed by the delivery system.

This is because of corruption, high levels of callousness, appointments of personnel on criteria other than merit, weak supervision, lack of accountability of service providers and the high degree of tolerance for poor quality services shown by service recipients.

With increasing polarisation, the fabric of civil society is being rent asunder, one fears irretrievably. The resentment of the poor is growing, as they compare the sub-human conditions in which they live with the increasingly fancy lifestyles of the more affluent members of society.

Anger is building up against those who are building fortunes but not paying their taxes. There is anger that whereas the incidence of increased taxation has been the heaviest for the least affluent, public expenditure on services used largely by them is being diluted rapidly in real terms.

The poor see the privileged loot and plunder and engage in conspicuous consumption, throwing all the burden of adjustment and re-deployment on the less affluent. While the well-to-do default merrily on tax obligations to society, the leadership winks and maintains a studied silence, resulting in a further loss of faith in established systems of government and business.

We cannot balance budgets by causing imbalance in human lives. People must move to the centre of the dialogue — urgently — since social tensions are mounting with the growth in absolute numbers of the poor, illiterate (with limited, if any, skills) and the jobless. Such conditions can hardly be conducive for political and social stability, without which substantial growth will remain a distant dream.

As the results of polarisation unfold before our eyes, their ferocity will shock most. It is not as though the warning signs are not already there for anybody who wants to see or is willing to look at them. The increasing empathy with the views of TTP-type forces and daylight dacoity only portend of what is still to come. A callous and uncaring society should not expect any better. Without an enlightened elite presiding over and implementing a better alternative of a fair and just society, providing adequate opportunities of social and economic mobility to those from less privileged backgrounds, it would be foolish to expect any other outcome.

The writer is the Vice Chancellor of Beaconhouse National University.