Pakistan’s unabated economic predicament

With inflation rate hovering around 25% and frequent escalation in the prices of petroleum products, gas, electricity and other essential items, Pakistan’s economic predicament is reaching an alarming stage. Foreign exchange reserves held by the State Bank of Pakistan still remain meager at $8 billion, barely enough to cover two months of imports. And no upward trend is being witnessed in exports, remittances and FDI. As a result, around 90 million people are now living below the poverty line with no respite for an early economic recovery.

On April 15, the government raised the prices of petroleum products for a second time during this month, raising questions about a severe implication on the costs of food items and transport fares. When the economy of a country reaches its fragility, the result is political chaos and unrest. The 250 million people of Pakistan are at the risk of an economic collapse despite talks going on with IMF for another bailout package. Pakistan needs to return around 40 billion dollars during the fiscal year 2024-25, further compounding the challenge of mobilising resources from external sources to cater to the balance of payments crisis.

Growing tension at the international level following the Iran-Israel standoff and the wars in Gaza and Ukraine also tend to put pressure on Pakistan’s economy. If there are best, talented and creative minds in Pakistan who can focus on pulling their country from the brink of an economic crisis with integrity, hardwork and intelligence, the country can avert the looming financial breakdown. Surprisingly, despite hiring professionals from abroad, like finance minister and central bank governor, no qualitative change in the economy could have been witnessed. The reason for this economic stagnation is the failure of the state to take drastic measures to eradicate corruption and nepotism and enhance tax base. The incumbent finance minister is an internationally renowned economist, but serious fault lines in the system may not allow him to deliver. Here the link between politics and economy is vital because as long as the country is politically unstable and chaotic, it will not be able to better its economy, governance and the rule of law.

When the cost of living is growing on a daily basis in the form of costly electricity, gas, petrol and other daily use items, the survival of an overwhelming majority of the population remains at stake. The cushion of remittances of around 30 billion dollars a year is not enough to cover the imports; the value of the rupee versus major international currencies is declining continuously; and the economic growth rate has shrunk to 2%, as projected by IMF — a matter of grave concern.

Is there a way out for the 250 million people of Pakistan from this unabated economic predicament? Why have the successive regimes failed to manage economic crisis? Why are the civil society groups and political parties who used to raise a hue and cry during the PTI government about the rising prices of fuel, gas, electricity and other essential items mostly silent? Three years ago, the prices of essential commodities were less than half of what they are today. The economic growth rate had reached 6% when the PTI government was sent packing; the price of petrol was Rs150 a liter as against approximately Rs294 today; the per unit cost of electricity was Rs32 unlike Rs60 currently for the highest slab; the dollar was available at Rs189 unlike Rs279 today. But those who were highly critical of the PTI government’s economic performance are mum despite all the macroeconomic indicators painting a bleak picture of the economy.

Pakistan’s unabated economic predicament needs to be analysed from three angles, as follows.

First, the government which had announced austerity measures to conserve resources must now ensure implementation. Mere rhetoric will not work unless strict control on expenditures is enforced. Furthermore, preventing tax evasion and broadening the tax base is the need of the hour. Bringing those who are doing enormous business but not paying taxes — like shops, private educational institutions, private clinics, etc — under the tax net will fetch several hundred billion rupees. Adequate tax on agriculture income will ensure several billion rupees more. It means through local resources, the country can mobilise trillions of rupees which will be sufficient to cater to development expenditures, run the administration of the country and meet defence spending.

Second, the 22^nd IMF programme, being negotiated currently, will exert further pressure on people in the form of higher prices of gas, electricity and petroleum products. Instead of pursuing a policy of self-reliance like India and China, Pakistan has since the very beginning opted for external financial loans, resulting in the accumulation of foreign debt to the tune of 130 billion dollars. If the country starts relying on domestic resources and support from overseas Pakistanis and cut down on expenditures, our rulers need not go to IMF for a bailout package or request friendly countries for financing. An honest and competent leadership can easily deal with the country’s economic predicament but the mafias entrenched in almost all the public-sector institutions is a major impediment to economic recovery and subsequent growth. Other countries in the region like Afghanistan, Bangladesh and India are economically doing well. In the Gulf, the UAE, Oman, Qatar, Bahrain and other Gulf Cooperation Council (GCC) countries which got independence in the 1970s are far ahead of Pakistan in terms of infrastructure, economy, governance and rule of law. Pakistan needs to put its own house in order if it wants to survive with dignity and respect.

Third, if the country has to be saved from further economic fragility then it should declare financial emergency, enforce strict control over expenditures and take drastic measures mentioned above for enhancing tax base and adhering to a culture of merit. Time is running out and an urgent decision-making to reform the economy is the need of the hour.

Published in The Express Tribune, April 23^rd, 2024.

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