When the pie shrinks

By Khurram Husain
Published in Dawn on November 23, 2023

THE state, the economy and the people pull the resource envelope of the country in different directions. This is especially the case when periods of macroeconomic adjustments get going, meaning when an IMF programme is being implemented.

The state needs revenue. The economy requires liquidity. The people want incomes. Each of these can come from different sources, and they are finite. When the economy is growing, these resources grow in tandem and, for a moment, it seems as if everybody is getting what they want.

These are the feel-good years. But when the growth stops, a tug-of-war ensues between the state, big business and ‘the people’ to secure their respective shares of the pie.

Each episode of adjustment looks substantially the same, but differences of detail do emerge. Growth stalls, interest rates rise, the currency is devalued, utility prices rise, taxes are applied. But look at where the resources flow during these times, and you’ll get a better idea of who is getting how much when the pie shrinks.

An episode of adjustment began in July this year, when the country signed onto its latest IMF Stand-by Arrangement, and its first review just ended successfully. Now look closely at where the resources have gone during these months. Banks declared record-high profits all year.

Between July and September of the year, the whole corporate sector saw the “highest-ever quarterly earnings” (post tax) according to a report put out by Topline Securities. Listed companies raked in Rs417 billion in post-tax profits in these months, of which Rs149bn were taken by the banks alone.

The state and economy are both finding stability squarely on the backs of the poor.

Make sure you understand this before moving on. Banks took in more than one-third of the total profits of all listed companies in the first three months since the IMF programme began. All sectors in the listed companies’ universe saw their quarterly profits rise in the same period, even if by varying amounts. Cement, fertiliser and automobiles saw the highest quarterly profits they have made in almost two years.


Each sector paid out a rich harvest of dividends to their shareholders. According to the same report, Rs97bn were paid out in dividends, of which Rs51bn was by banks alone. The amount was higher by 13 per cent from the same period last year. A small number of people were made very rich in these months.

At the same time, small and medium enterprises issued SOS calls for survival. After all, these are months in which demand in the economy is collapsing, large-scale manufacturing is registering near zero growth, high interest rates are weighing on debt service costs of corporates, and the state is thirsting for revenue.

Partially out of this thirst, the government imposed a ‘windfall tax’ on the banks for the outsize profits they made last year on their foreign currency dealings, aiming to capture up to Rs58bn of these banking sector profits for itself, according to calculations presented by Arif Habib Ltd.

In two years, the banks raked in close to Rs145bn foreign exchange income, so the government seems to be capturing a fairly large chunk of this for itself through this (supposedly) one-off tax levied earlier in November.

Meanwhile the government’s tax revenue collection recorded an increase of 24pc from the same quarter last year. Much of this was due to inflation. A small amount would be due to nominal GDP growth. Suffice it to say, the IMF was left deeply satisfied with the fiscal performance in the first quarter.

The primary balance registered a surplus of 0.4pc of GDP (which sounds small but is actually quite large), and it is possible the government may have over-performed on the fiscal side compared to the quarterly targets set in the programme.

So business is shutting down. Imports continue to face restrictions, which is what accounts for the current account deficit shrinking so rapidly — as always happens in the first few months of an IMF programme. Small and medium size businesses are on the verge of shutting down.

Confidence in the economy, according to a recent survey by Ipsos, is near rock bottom, with nine out of 10 people surveyed saying the economy is moving in the wrong direction.

Yet big business is raking in profits and dishing out the dividends. Government is getting its revenues, slashing its expenditures, and jumping all the hoops set for it by the IMF programme in what is without doubt the smoothest IMF review we have had since 2019. So the question is, who exactly is suffering here? Why does confidence still remain so low?



The answer is simple. The poor, the working poor, the salaried classes are all suffering. Their incomes have not moved in tandem with inflation, nor with devaluation. Their savings have eroded. Their costs are seeing one shock after another, with an unending series of utility price hikes. The latest of these shocks is set to land on their doorsteps when their gas bills arrive. It is hard to say whether unemployment is increasing because we don’t have a reliable, recent data point, but it is safe to assume it is certainly not falling.

This is classic macro adjustment, Pakistani-style. It is good news indeed that we have an IMF programme being implemented smoothly after almost two and half years of reviews in fits and starts. But the state and economy are both finding stability squarely on the backs of the poor.

No sacrifice worth the name is being made by the rich, not in terms of their earnings, their asset values or their consumption habits. Of course, this does not mean we abandon the IMF-mandated adjustment. But it certainly means that we bring the reforms necessary to safeguard people’s incomes as much as the incomes of the elites and the state, in good times and bad.

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