Pakistan Economy Current Situation/Challenges:

The world has stepped into a new decade with the start of 2020. But, we as a nation
as still standing decades behind the rest of the world. Out of many reasons for the
backward crawl of Pakistan, the economy has been the burning issue for every
Government in the country. With Imran Khan’s PTI leading the country in a new
decade, one must be wondering about baby steps to revamp the economy of the
country.
Two different opinions exists on the economic condition of Pakistan. Government
claims that economy is back on track whereas independent analysts portray a
different picture. There is no doubt that there is some improvement in some areas
whereas a lot of improvement measures are not even under consideration.
Government claims that they are now in a position to fulfill their election promises.
Recently government has passed the first review of IMF, which is being presented
as an endorsement from an international organization on the economic
performance of the current government. Yet, independent economists have
different opinion on the economic performance of the government. One of the
points which every economist is highlighting is related to the growth of the
economy. At a time when country needs development, businesses and job creation
whereas focus of IMF program is on economic reforms and documentation of the
economy instead of on the development and growth. Consequently in next few
years the growth requirement would be multiplied and thereafter Pakistan’s entire
small to medium enterprise set up could collapse. Continuous hike in electricity
and gas prices has put a lot of pressure on the businesses, their profit margins have
squeezed, and top of that, fear of unknown and uncertainty prevails in the market.
These factors have completely jammed the industry, be it small, medium or large,
the issue is across the board. This will further aggravate in the three years of IMF
program.
Government is apparently satisfied with the level of forex reserves now and we
also see some stability in the forex rate these days. This is just because of hot
money. Forex and interest rates will not change in next 12 months or even more till
the time, foreign investors are not taking their money out of Pakistan. Keeping
forex at a constant level incentives foreign investors to invest in Pakistan’s debt
market. Getting return of over12 percent in Pakistan means best returns in the
world with no forex impact as such. Meaning thereby, Pakistan’s debt market has
become so attractive for the foreign investors but this can simply grind the local
businesses due to high interest rates.
Pakistan has cleared the first review of IMF but no details are available except for
a press release by IMF itself. May be in coming weeks, IMF will release a detailed
assessment report, which can give a full picture of economic performance. Current
account deficit, foreign currency inflows, stability in forex rate are few of the
performance parameters where government has performed well in all of these
parameters. The trouble is when there is no growth, jobs are not being created and
poverty is spreading. There is no doubt that people are very disturbed mainly
because of high inflation. Food inflation has dropped from 15 to 13 percent yet
prices of daily use commodities are on the higher side. There are two aspects to
this, policy and natural climate. Government has stopped trade with India thus
prices of tomato have increased many times. Pakistan being an agri country doesn’t
have enough tomato, sounds weird, but it is a fact these days. And then there are
untimely rains in some areas which has destroyed the crop.

The Federal Board of Revenue (FBR) has been actively taking steps, especially in

the recent past, to increase documentation of the economy. Along with increasing
the tax base in the country, this is basically to decrease the informal sector of the
economy, which according to some estimates is at least one-third of the GDP of
Pakistan. Government drive to document the economy is not going anywhere, it
was started without enough deliberation, and half cooked idea was launched. It
should have been in phases rather than doing in such a manner. May be because of
FATF pressure. But it has harmed more than bringing any good for the economy.
Asking NTN from a customer for buying goods worth more than PKR 50,000 is
beyond my understanding. This is then the documentation of a customer as well
and presenting it as a condition from FATF is not understandable. FATF is related
to terror financing, which means FATF wants to implement internal controls in the
financial system so that criminals don’t get access to the finances and banking
system. It’s a good and logical reason. But I fail to understand how can FATF asks
for NIC from a buyer, think logically, a criminal would need cash to finance his
activities or a criminal would need a TV worth PKR 75,000 to continue his
activities? If someone buys jewelry then it makes sense to ask for NIC but what is
the purpose of asking someone buying electronic goods for NIC. Electronic
appliances, laptop, cell phone, watches, and even pen cost over PKR 50,000.
Basically government wants to document the sales of the traders, which should be
documented. But the government’s approach is defiantly not in the right direction
as far as this documentation of economy is concerned. There are precedents
available from around the world where countries have documented the economy
without creating panic and didn’t put such conditions.
Growth in tax collection is just 26 percent in first Six months of current fiscal year,
whereas the target was 45 percent. This means that monthly target of remaining
eight months would have increased from 45 to around 55 percent, which is not
going to be achieved in remaining time of the current fiscal year. FBR must be
thinking how to achieve the target of PKR 5,555 billion in fiscal year 2019-20.
Government has not yet released the data related to its expenditures. It is expected
that fiscal operation data will be published in next few days, which will give
provide the details on the expenditure. In coming months, almost every ministry
will ask for supplementary support, which were not factored in the budget.
Recently Prime Minister has announced that government is going to establish
Pakistan Revenue Authority instead of using Federal Board of Revenue (FBR).
This authority will have same the fate as we have seen with the Sarmaya Pakistan.
As this new proposed authority will have an impact on every province therefore
provinces will have to approve this as well, as per the constitution of Pakistan. It is
quite certain that not all provinces will support such concept. As a matter of fact,
there is no need to reinvent the wheel, instead of reforming FBR, creating a new
body is just waste of time, energy and resources. Pakistan cannot afford wastage of
any of these three components.
As a first step government should control smuggling. This alone factor will have a
serious positive impact on the economy. Smuggling goods into Pakistan but taking
goods out of Pakistan is mind boggling. Pakistan cannot progress without
controlling its boarders, be it security or economic situation. The sooner we realize
this, the better it would be. It’s never too late, government should focus on revival
of economy instead of following some unrealistic targets.
In Pakistan, the economy is expected to recover slightly from 2021 onward, amid
the implementation of government reforms.
High inflation and security concerns have hurt domestic demand and private
investment, and the Government’s ability to address the slowdown has been
severely curtailed by the fiscal tightening.
Meanwhile, the State Bank of Pakistan is balancing a stronger commitment to
inflation targeting with a managed depreciation of the currency, but this is
complicated by increases in energy tariffs that have been imposed as part of the
fiscal reform package.

While the tightened monetary policy in Pakistan is expected to help move inflation
towards target levels in the years to come, the country’s inflation remains
extremely vulnerable to fuel price fluctuations and weather conditions, as is the
case for most countries in the region. A good harvest and resulting moderate food
price inflation will be of critical importance for the region’s poor, whose household
budgets are strongly linked to food prices.

Growth Rate Challenge

Out of many economic indicators, the growth rate of a country is the top burning
issue for every economic team. If we study our history, we’ll observe a promising
increase in the country’s growth rate. As per the World Bank’s report, just three
decades ago, Pakistan’s annual growth rate percentage was 7.706 in 1992.
The UN projects Pakistan’s economy to grow by estimated at 3.3 per cent for
2019-20, is projected to slip to 2.1 per cent next year, while Indian economy will
grow by 5.7 per cent in the current fiscal year and expects it to rise to 6.6 per cent
in the next. Bangladesh is forecast to grow by 8.1 per cent this fiscal year and 7.8
in the next.
If we move the clock further backward, we’ll observe the growth rate at 11.353 in
1970. However, from the past few decades, the economic indicator is falling like
the country situation in other fields of life. When Imran Khan took control of the
Prime Minister’s office, the annual growth rate percentage was 5.83 in 2018.
Suggestions for Improvement
Being a student of the country’s economy, I have studied and found a few basic
factors that we should consider in the new decade to give hope to billions of
citizens.
 Foreign Investment
Investment from international brands and companies has always been a target for
Pakistan from past decades. Ever since I was growing up, I constantly hear each
Government focusing on this factor. However, with terrorist activities in the
country, circumstances haven’t been feasible for any investment, let alone for trade
with developed countries.
Let’s be thankful to the armed forces who have removed the majority of terrorists
from the country. This paved a path to foreign investment, and as a result, we have
a ray of hope in 2020. Pakistan is declared the third top tourist destination in 2020
by the British Backpackers Society.
It is a pleasing surprise and golden opportunity for PTI’s government to focus on
its tourism slogan in the next year. As tourism will grow, investment chances will
also increase. We know tourism and investment are on the same graph and directly
affect each other.

 Human Capital Investment

Instead of living in a false paradise, let’s all be honest and realize that we have a
long way to go in 2020. A single step can’t turn around the economic condition of
the country. Another step that needs attention from the state is the humans of the
country.
When we talk about investment in humans in a society, top factors are education
and health. Education and health are the sectors neglected by many decades by the
governments in the past.
Citizens in small cities, towns, and villages don’t have access to basic health
facilities. This keeps the economic indicators at a lower point despite all the hard
work in other fields. The state should put a primary focus on the health and
education sector in 2020. This will help the state in return. A high number of
people can go to work; thus, more industries will work, and the economy will be
stabilized.
 Financial sector
Although, like every government, the PTI government comprises of economic
experts. But, a vital point being neglected is access to finance to a common man. If
we look around our society, we’ll find out that only 14% of citizens are using a
bank account. This means that 84% of our population has no access to standard
international financial privileges.
This lack of financial access results in a low number of startups and SMEs in our
small towns and villages. The private sector is a major contributing factor in the
country’s economy. But, our governments and state are neglecting the role of the
private sector for many decades. Providing financial access and privileges via a
bank account is a baby step for the private sector that must be taken at earliest.

 Political Stability
In every democratic country, Politics and political stability have a direct relation
with the economy of the country. From the past three decades, the political
situation has not encouraged the businessmen of the country. In these decades, we
have seen the worst of our politicians, and it resulted in poor economic conditions.
Lack of legislation, week justice system and week law enforcement are
contributing factors to the political stability of the country.
In 2020, all political parties must let their personal interests aside for the
betterment of the country. Legislations must be completed at the earliest so the
state can focus on vital factors contributing to the growth rate of the country.
In the end, each citizen is responsible for a better growth rate. We need to start
fulfilling our role by filing the taxes on time, working hard in our offices, and by
sharing the positive image of the country with other nations.