When the inflated economic balloon takes off, all the people watch it with awe. Soon, this balloon bursts into pieces and all the optimism is lost. The same condition applies in Pakistan. Despite a stream of strong words by the various rulers of Pakistan, the situation has been plunging downward.
In simple words, the economy is an entire network of producers, retailers, wholesalers, and consumers. The economy is taken as blood in the strategic muscles of any nation in the world.As far as the situation in Pakistan is concerned, the economy has been undergoing recurrent balance of payment crisis, the balance of trade deficit, dwindling reserves, and below-par collection of taxation. In this write-up, we will dissect the main reasons which aggravate the situation.
Present Economic Woes
The following paragraphs have thrown light upon the current economic problems in Pakistan.
Recurring Budget Deficit
It is described as a situation in which the revenues of the government are less than its expenditure plans for the current fiscal year. When the government faces this situation, it has to borrow from domestic or foreign institutions. As a result, the debt is accumulated to a greater extent. As per the data of the State Bank of Pakistan,
“The total debt and liabilities of Pakistan are estimated to be about Rs. 63.279 trillion.“
Mounting Rate of Dollar
Another major cause of concern for Pakistani stakeholders is the mounting rate of dollars in Pakistan. It is now estimated to be above 280 PKR. It increases the cost of imports. As a result, the prices of imported items are skyrocketing persistently. The current rate of inflation in Pakistan is above 40%.
Rising Inflation
Likewise, the major concern of all Pakistanis is the increase in the prices of consumable items. As mentioned above, the inflation rate has gone above 40%. It has rendered the situation alarming for the masses.
Dwindling Reserves
Similarly, the reserves of Pakistan have nosedived. It decreased to the point of below 3 billion dollars. It rendered Pakistan on the verge of default. As per IMF,
A country may default if it has its reserves are not sufficient to meet its external finances for at least three months.
Pakistan had finances at one point not sufficient even to meet its one-month financial obligations
Delayed IMF Program
Similarly, the incoming Pakistani government cannot ensure timely meetings of the IMF. Its program has been delayed which has created a sense of ambiguity in the business market of Pakistan.
Balance of Payment Crisis
Similarly, the recurrent balance of payment crisis has not been heeded properly. Balance of Payment entails that there is no balance in the receipt of what you receive from your financial transactions abroad and what you send as capital. It entails a balance of trade deficit in its broader horizon, which means that your imports are more than your exports. As per the SBP,
Pakistan imports The total value of Pakistan’s imports is 23 USD while the value of its exports is 46 USD.
The remittances of overseas Pakistan have also nosedived. The Economic Survey of Pakistan indicates that remittances dropped to 31 months low at 2.04 billion dollars.
Current Account Deficit
The BOP problem primarily in the form of the current account deficit is one of the major issues faced by Pakistan. It is the root cause behind the inflation and growth problems. Inflation rises when the rupee depreciates due to CAD and similarly, growth above 4% becomes unsustainable as the jaws of CAD start to widen.
Genesis of The Paralyzing Economy
The following paragraphs show the root causes of the ailing economy of Pakistan.
Debt-Based Economic Growth
First, Pakistani governments have relied on foreign aid and debts to fuel their economic growth. Pakistan rulers have been going to friendly countries asking for aid and deferment of debt payments. The debt it gets is spent lavishly on non-capital infrastructure. As a result, when it runs out of revenues, it pleads for debt again and the vicious cycle continues.
Import Based Economy
The second main reason is that Pakistan runs an import-based economy. The various governments never tried to make their exports sustainable and diversified. As a result, dollars outflow more than inflow.
Artificial Control of the Rate of Dollar
Likewise, it has been the strategy of some finance ministers to control the rate of dollars artificially for short-term gain. It may intervene in the market or it may inject a portfolio of debt to stabilize the dollar flow of the country. It looks to keep the rate of inflation in hand through these vicious means.
Incomplete IMF Programs
Moreover, various governments have been in the IMF program. None of these was completed in its true spirit. The terms and conditions or the benchmarks are not completed or the program was left in the middle.
Eighteenth Amendment Has Been Made A Liability
Last but not the least, after the promulgation of the eighteenth amendment, provinces were allotted their respective portfolios from where they could collect their own revenue but the concentration of economic and taxation powers have done wrong. The third tier of government has never been put in place. This is the main reason behind the low collection of taxes from the provinces.
Through the NFC award, these provinces draw 57% of the total divisible pool leaving the center as a toothless tiger.
Plugging Out The Loopholes In the Economic System
The following paragraphs show that the following reforms are the need of the hour to put the economy on track.
Hard Decisions Must be Taken
First, hard decisions must be taken now for the survival of the economy. The media and all the political parties should be on the same page regarding this point.
Make Your Exports Diversified and Innovative
The government should give selected subsidies to export-based industries. It should invest in these industries so it may innovate and compete with the regional markets.
Exchange Rate Should be Left on Market
In the same way, the foreign exchange rates should be left on the market conditions instead of manipulating for shorter gains.
Direct Taxation Should be Boosted
Likewise, the government of the time should put pressure on the elites to collect revenue instead of crushing the lowers rungs of the society through indirect taxation.
Wrapping Up
To sum up, we may conclude that though the ship of the economy seems to be stagnant and all the signals are down, but after some years Pakistan will be able to show its resilience to the international community. If all the stakeholders are on the same page, we will ace through these tough times. But it’s easier said than done. Let’s hope for the best.