The global growth rate for 2019 is 3.2 percent and estimated that it would pick up to 3.5 percent in the coming year 2020, according to the World Economic Outlook database. This acceleration will be the result of the improved economic performance of the world’s emerging commercial markets.
Historically, Pakistan always faced unstable economic conditions and economic constraints. Pakistan also faced low economic growth patterns, which added to the uncertainty about the economic growth in Pakistan. The country observed a 10% growth in 1954, but it declined in the following year and rose again to 9% in 1969. Our economic growth dipped again to 1.2% in 1971. Our economy did not grow until 2000. During the General Musharraf reign, the economic growth rate was 7.5% in 2004 and 2005, but it again started to decline in 2006 and dropped to 5.5 percent in the following year. But after 2007, when the Pakistan People’s Party came into power from 2008 to 2013 and during other governments when PMLN went into the government, then the average economic growth rate was 3.2 percent from 2008 to 2018.
After the general elections of 2018, when Pakistan Tehreek e Insaf (PTI) won the contest, and Imran Khan held the premier office, economic conditions were worse, and there was no money in the government’s hand instead there were massive debts on the country. But the Prime Minister of Pakistan promised the nation to restore the country’s economy. Currently, Pakistan is facing issues in taxation, trade, and fiscal deficit, the poor performance of the agricultural sector and declining of the industries in the production industry.
Fiscal Deficit
When the total expenditures of any country’s government surpass its revenue collected, excluding all money raised from borrowings or debts (internal or external), then it results in yearly deficit. Some Keynesian economists regard fiscal deficit a decisive event in any economy. They hold an opinion that gaps can help any country to come out of the economic recession. While the conservative economists advised avoiding holes.
Pakistani government concluded that the country is facing the highest fiscal deficit in history. The government’s total revenue is 12.7%, and expenditures are 21.6%, and there is a gap of 8.9% in expenses and taxes, so Pakistan has an 8.9% overall fiscal deficit.
The burden of Internal and External Debts
When a country can not meet its expenditure, then it will have two options; either learn to live within available resources or borrow money to meet its expenses. Historically, Pakistani governments always opted for the second option. The country borrows money to meet its developmental and defense expenditures and manly to pay the previous debts. After taking money, Pakistan supposed to utilize the obligations in a way that can higher the economic rate and help the government to accomplish developmental and social goals in the country. But, Pakistan lacked a prudent debt management team that, in results, harm the economy.
Public debt is a direct charge on the government revenues as well as the debt obtained from IMF. Further Public debt has two portions, and those are domestic debt and external debt. Household debt is incurred principally to finance the fiscal deficit, and foreign debt is raised mainly to finance the developmental expenditures and to support the balance of payments. Pakistan is liable for a total of 106 billion dollars of external debt against different donors. And the public debt of Pakistan is 35.094 trillion rupees, and it is the 91.2 percent portion of the country’s gross domestic product. The current government of Pakistan is making tough decisions to improve the economy and decrease the number of debts and will bear fruits in the future soon. Now the country is restoring the world’s confidence in the economy of Pakistan.
Trade Deficit
A trade deficit can be described as the negative gap between import and export bills. You can also say that when import bills exceed the export bill and the current account of the government went into negative figures is called a trade deficit.
In the fiscal year 2018, Pakistan experienced a current deficit of 5.6 billion dollars, but now, by the end of October, this gap shrunk to 1.474 billion dollars. It is the result of a sharp decrease in imports of goods from other countries. There is a slight increase in the export of Pakistani products. It is 1.749 billion dollars for the current year as compared to the 1.709 billion dollars last year. The country’s existing account had a surplus during the month of October, and it was due to a massive cut in the import bills. Some critics’ decrease in imports will automatically slow down the economy and economic activities and which in turn will disturb the GDP growth rate of the country. But the governor of the State Bank of Pakistan, Raza Baqir, says that the fall in the current account deficit is excellent and is a sign of a country’s economic stability.
Dwindling Foreign Reserves
The government of Pakistan is also struggling with the dwindling foreign assets of the country. Economic reserves in the State Bank of Pakistan was declined hugely at the start of the recent years to cover the massive current account deficit, and economists were expecting that country will have 13 billion dollars foreign exchange reserves by the end of June 2019. However, the government of Pakistan took various steps, including seeking debt from different international donors. SBP states that by the end of November, Pakistan’s foreign exchange reserves rose by 45 million dollars, and it is now 844,2.1 million dollars at the foreign exchange reserves. When the IMF releases the second tranche of the loan to Pakistan, then our foreign exchange reserves will also go high.
Poor Taxation System
Cumbersome tax laws and procedures are the first issues that the government needs to address. Tax laws and procedures of a country decide the ease of doing business in a country. The World Bank ranks a country for the ease of doing business in the following criteria:
- Starting of a business
- Dealing with construction work
- Getting electricity at the sight
- Registering a business property
- Getting credits or loan from financial institutions
- Protection for investors
- Trades of a country across borders
- Enforcing of the contracts in the country
- Resolving insolvency
- Taxpaying system of that country
Pakistan was listed on the 138th number on the list of 198 countries in 2016. But with the focused efforts of the government in Pakistan, the country improved its ranking to 136th in the list.
There is another issue with the tax system of Pakistan. And it is a narrow tax net. There is a myth that Pakistan has a small tax base, and it means that few people are under the tax net. But it is not right. The government has a mechanism for different taxes, including property tax and income tax. As per data provided by the Pakistan Telecommunication Authority (PTA) in 2017, all phone users pay tax, which is 72% of the total population. There is one thing that the government needs to do is to charge the due taxes.
Third, Pakistan has a weak enforcement mechanism for tax collection. It is a real problem for a tax collector institution, FBR, in Pakistan. The Federal Board of Revenue does not have a full reach to all people in Pakistan. The tax collector institution is working with only 23 tax offices, including 4 large taxpayers and 19 regional offices. There are 10 regional offices in Punjab, 1 in Islamabad Capital Territory, 5 in Sindh, 2 in KPK, and only 1 in Balochistan. FBR also established some small offices in other cities, but still, their network is not extensive. That is why they have weak enforcement of tax laws. The burden of indirect taxes is also another critical issue of the tax policy of Pakistan.
Another problem is the abolishment of Wealth-tax. It was introduced in 1969 and toss out in 2002. Rich people of civil society opposed it strongly as they have to pay 2.5% tax for the wealth. After the abolishment of the wealth tax, it is estimated that about 60 billion dollars placed all over the world. It was either remitted other sundry took money without any fear of being investigated.
Energy Scarcity
Pakistan’s energy resources are decreasing. With a population explosion, the country can run out of the funds in the coming years. Various initiatives were started by the different governments in Pakistan to sustain the reforms in the country. National Power Policy was approved by CCI members to combat the significant challenges and issues in the energy sector in the long run. China-Pakistan Economic Corridor (CPEC) is also the foresee of energy projects, and there is a plan to spend 34.74 billion dollars in power generation and transmission sectors.
Conclusion
People in Pakistan are mostly dependant on the agricultural sector. If there are industries, they are backward and have a small production capacity. It is increasing disguised poverty and low living standards in Pakistan. While the inappropriate use of natural resources and limited foreign exchange reserves combined with substantial external debt, population explosion, and an increase in the level of pollution in the country is also an alarming situation for Pakistan. We need to worry about it and make a path to make the country on the way of sustainable development.
