My observations on Pakistan’s economy

Published: July 2, 2019
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PHOTO: FILE

PHOTO: FILE

PHOTO: FILE The writer is the Managing Director of an Islamabad-based Chinese company

P akistan’s current fiscal and taxation policies are characterised by increasing tariffs, expanding the proportion of taxes, raising all kinds of living, production and material rates, resulting in a sharp rise in the production costs of enterprises and an increase in the burden of business operation. At the same time, the exchange rate of the Pakistani rupee against the US dollar has depreciated sharply recently. The consumption cost of the people has risen sharply in a short period of time. As a result, the market demand becomes weaker, and the inflation rate is higher. At the time of rising production costs, enterprises have encountered the double challenge of shrinking market demand, adding to their difficulties and worrying conditions. Some enterprises have stopped production or sought to withdraw from the Pakistani market to seek overseas development, thus increasing the unemployment rate in Pakistan.

Due to poor economic performance and deviation of fiscal and taxation policy, Pakistan has encountered some serious problems, such as stagflation, sharp devaluation of currency, and high inflation rate. The direct result of stagflation is a sharp decline in people’s income and a sharp increase in unemployment, as well as major problems in social stability. It seems that Pakistan is entering a vicious circle of economic decline in investment, production, circulation, and consumption, which in turn leads to both financial and economic crises.

At present, the response of the Pakistani government is limited to short-term solutions, lacking long-term strategic vision. The effect of the ‘treatment’ is not as desired. I would like to make a few observations:

1) It is necessary for Pakistan to make good use of the China-Pakistan Economic Corridor (CPEC) so as to rapidly develop the Pakistani economy, benefit the Pakistani people, and improve the livelihood of the people. The smooth development of CPEC projects over the past six years has greatly changed the quality of life of the Pakistani people and led to the rapid development of the national economy. Therefore, CPEC in Pakistan is a project supported by the whole people, and it has become an important factor that can change the fate of Pakistan. As CPEC has reached a critical period, we shall make positive preparations for the healthy and rapid development of CPEC in a constructive direction.

2) Pakistan shall always put national interests and national development in the first place. All government departments should have a sense of mission for the sake of national interests, cooperate with each other and coordinate efficiently, and should not attack each other and pass the buck for the sake of their own interests.

3) Development needs to be carefully arranged and carried out in an orderly manner. At present, it is necessary to seriously study which industries are in line with Pakistan’s national conditions and market needs. The situation in provinces and localities is different. We should study, identify and consider which industries are in urgent need of the local market, which industries are conducive to the development of local resources and other factors, and rationally balance regional interests. We shall take a comprehensive approach, and formulate a targeted medium and long-term (5-10 years) development plan.

4) We shall formulate an industrial plan in line with the development of Pakistan’s national conditions. We also need to seriously consider, carefully manage and cultivate the layout of the whole industrial chain. Only in this way can we really cultivate the manufacturing sector in Pakistan. It is necessary to consider the training of talents in relevant industries, from technical skills to management, organisation and arrangement, and to study what talents will be needed in these industrial chains in the future. Talents must be trained in a targeted, fixed and quantitative manner. In the early stages of talent training, Pakistan can consider seeking help from China and Germany. In the later stage, we can consider the joint training by government, schools and enterprises so that talents can quickly enter the working force, get the stage to display their talents and create more than expected value.

5) The continuation of good policies is the cornerstone of national development. Let investors have no worries, rest assured that bold and active investment shall be made. Investment will bring advanced technology and good management experience, international markets. It will also provide a large number of jobs, promote business development, reduce dependence on imports, increase export opportunities, and increase national taxes, so as to bring the country into a virtuous circle. We shall study how the surrounding countries that have done a good job of attracting investment. We shall study and compare the comprehensive factors of various aspects so as to formulate a more attractive investment policy, more in line with the long-term development of the country to attract investment. And we shall introduce relevant policies and continue to push them forward.

6) Fiscal and tax policies that meet Pakistan’s long-term interests should be formulated. I believe that the current top priority is to encourage economic development, not vice versa. The interest rate of bank deposits shall be lowered with appropriate macro-control policies so as to encourage some bank deposits to actively participate in market circulation and increase the proportion of investment. In this way, more jobs could be created, enterprises could get the capital to develop the industrial chain, and a virtuous circle of economic and financial development could be created. In terms of taxation, expanding the tax base and reducing the tax rate is the need of the hour. We shall inculcate individuals and enterprises the idea that paying tax is glorious, implement the step-by-step tax policy, and expand the tax base both by law and reasoning.

In addition, in the current dismal business environment, the production enterprises should be given appropriate tax reduction support so as to help the products to enter the circulation as soon as possible, promote the market recovery, increase consumption, and increase the employment rate. If the Pakistan government can attract more overseas investment, it can get more tax revenue from the increase of the scale of production, operation and transportation of enterprises. Specific measures include reducing tariffs on raw materials and spare parts to help enterprises reduce production costs, simplifying the process of administrative examination and approval of enterprises, delegating responsibilities to relevant ministries, establishing one-stop services, and so on.

Published in The Express Tribune, July 2nd, 2019.

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