Fiscal Discipline And Structural Overhaul In Pakistan – OpEd
Pakistan’s economic discourse is marred by political posturing, with the Pakistan Tehreek-e-Insaf (PTI) presenting a distorted analysis of macroeconomic stabilization efforts under the Pakistan Democratic Movement (PDM) government. PTI’s brief, “The State of the Economy,” oversimplifies complex economic realities, ignoring global headwinds, historical policy inconsistencies, and much-needed structural reforms. This article critically examines PTI’s claims and highlights the PDM government’s reformist trajectory.
PTI dismisses the PDM government’s stabilization measures as “not unique,” citing Pakistan’s history of IMF programs. However, this argument neglects the substantive policy shifts underway. While IMF programs traditionally focus on short-term stabilization, the current initiative extends beyond fiscal tightening by implementing structural reforms in energy pricing, tax base expansion, and state-owned enterprises (SOEs).
A key reform missing in PTI’s tenure is rightsizing the federal government to reduce expenditures while ensuring effective devolution of power to provinces. This initiative aligns with the 18th Amendment’s intent, something previous administrations failed to execute effectively. Additionally, pension reforms—consolidating civilian and military pensions—have resulted in Rs 170 billion annual savings, projected to reach Rs 1.7 trillion over a decade. Such measures mark a shift from cyclical stabilization toward sustainable fiscal prudence.PTI’s claim that 18 million people fell into poverty under PDM due to regressive taxation and subsidy withdrawals is misleading. The fiscal adjustments, though painful, were critical to averting a financial crisis. Notably, PTI itself negotiated similar IMF conditions, including subsidy cuts and energy price hikes.
Unlike PTI’s approach, which often lacked targeted relief, the PDM government expanded social safety nets, including a 25% increase in Benazir Income Support Program (BISP) allocations in FY24. Furthermore, the World Bank’s poverty assessments reflect broader global inflationary pressures rather than solely domestic fiscal measures. Blaming PDM for economic hardships while ignoring global commodity price surges and PTI’s own IMF commitments is intellectually dishonest.
PTI attributes industrial decline to the PDM government’s policies, citing contractions in large-scale manufacturing (LSM) and overall industry. However, the deeper issue lies in structural inefficiencies and policy inconsistencies inherited from PTI’s tenure. The energy sector, a major cost center for industries, was burdened with circular debt reaching Rs 2.6 trillion by 2022—an issue exacerbated under PTI. The PDM government’s energy reforms, projected to save Rs 137 billion annually and Rs 1.4 trillion over a decade, aim to correct these distortions. Additionally, the Special Investment Facilitation Council (SIFC) is fostering foreign investment in high-potential sectors such as agriculture, mining, and IT. These initiatives provide a foundation for industrial revival, a reality PTI’s narrative conveniently overlooks.
PTI criticizes fiscal consolidation efforts, arguing they disproportionately burden the poor through indirect taxes and electricity tariffs. However, the tax-to-GDP ratio remains one of the lowest in the region, necessitating progressive taxation. PDM has implemented higher income tax rates for elite brackets, a windfall tax on banks, and an increased focus on direct taxation. Moreover, fiscal deficit—after 24 years—has been turned into a surplus, reflecting disciplined economic management. Electricity tariff adjustments, while unpopular, align with cost-recovery principles essential for preventing a power sector collapse. Unlike PTI’s tenure, where deficits widened despite populist spending, current measures focus on long-term sustainability rather than short-term electoral gains.
PTI’s critique of government spending misrepresents key reforms. The cited Rs 1.37 trillion expenditure includes essential allocations for salaries, pensions, and special initiatives. Civil service reforms are streamlining governance structures, while pension reforms are reducing long-term liabilities. Privatization, a long-ignored imperative, is finally in motion. The restructuring of Pakistan International Airlines (PIA) is attracting global investors, leading to an expanded network and increased profitability potential. Unlike PTI’s opaque handling of state resources, the current government is actively engaging in transparent privatization efforts.
PTI argues that the decline in inflation is a byproduct of economic slowdown rather than effective policies. However, core inflation has dropped to single digits (9% YoY as of January 2025), attributed to a combination of monetary tightening and supply chain improvements. The reduction in fiscal deficit and enhanced foreign exchange reserves further reinforce macroeconomic stability.
PTI’s economic critique lacks nuance, focusing on selective statistics while ignoring structural reforms. The PDM government has undertaken difficult yet necessary measures to stabilize the economy, foster industrial revival, and restructure governance mechanisms. While challenges remain, the current trajectory moves beyond mere crisis management toward sustainable economic restructuring. Political rhetoric cannot obscure the reality of much-needed reforms, which, if sustained, will lay the foundation for long-term prosperity.
