Pakistan today, confronts multiple challenges which vary in intensity. Some of the challenges appear to be multi-dimensional and complex in nature which certainly will take many years to overcome. Interestingly, a few of the problems and challenges have been self-inflicted by the powerhouses that have caused a widespread socio-economic damage to this country. This way, the poor economy of Pakistan remains the chieftain among the challenges since the country’s birth. The weak and fragile structure and the picture of the economy of Pakistan are what inevitably produce other inter-linked social challenges, such as poverty and corruption.
One gets to know that ever-rising inflation, increasing unemployment, shrinking GDP and diminishing exports level are the major obstacles which restrict the ability of Pakistan to have a well-developed and flourishing economy. According to the Economic Survey of Pakistan 2016-17, the inflation rate in Pakistan grew to 5.02% from 4.78%; GDP growth rate went up to 4.71% from 4.04%; unemployment rate declined to 5.9% from 6%; interest rate is 5.75% which remains the same. Although the economic indicators are, by the large, not appreciable but a slight increase in GDP seems to be the positive development.
The GDP — Gross Domestic Product — is considered to be an integral part of the economic health of any country. An unfortunate reality appears to be the fact that the social services in the shape of education, health and the infrastructure development in Pakistan have always been under-allocated. In the year 2015-2016, Pakistan, cumulatively, allocated 2.68% of the GDP on education that is quite disturbing and lowest in the region and same goes for health and other social sectors. The schools and hospitals modernising and development; roads and bridges repairing or building new ones; and setting up institutions for vocational and technical training, are the steps that demand the urgent attention of the state of Pakistan.
Unsurprisingly, following the security challenges, Foreign Direct Investment (FDI) and existing corporate activity have been negatively affected. Firms have fled to other countries which are safe for executing operations. Not only this, the absence of feasible and profitable platforms to the businesses such as allowing grants, subsidies and Public-Private Partnerships (PPP) has further added to the grievances of the business community, thus, fanned the flames. Subsequently, businesses have been firing the labour force and not continuing the production of goods (tangible) and services (intangible), resulting in unemployment and lower GDP, respectively.
The production of goods and services to meet the demands of the people (Pakistanis) has always been lower than needed as Pakistan, unfortunately, is not a ‘self-sufficient state’. Pakistan is an agro-based economy (primary sector) with the major proportion of its income and GDP relies on the agricultural sector. And the production of food products is not only going on to feed the mouths of about 200 million of the people of Pakistan but also go for exports. Unfairly imposed taxes and restrictions on the agricultural activities and farmers badly influenced the production, and thus the GDP of the country. Resultantly, lower production levels and an imposition of taxes collectively led to the higher prices of the commodities, hence, inflation turns out to be an ultimate product.
The concept of huge imbalance between imports and exports followed by trade deficit in Pakistan is known to all. The current account deficit reached to $8.5 billion this year, signaling that fiscal health of this country is poor. As per the expectations, the huge inflow of expensive machinery and equipment — to be used for projects under China-Pakistan Economic Corridor (CPEC) — will further add to the amount of deficit, indicating deep-laying economic flaws in the country. The substantial decrease in export levels, due to serious power outages has dramatically led to the decrease in production of goods and services, affecting volumes of goods exported. One is unsure about the intentions of the political elite which claimed to eliminate power shortages by bringing 15000 MW into a system by the end of 2018. The inability on the part of industrialists to run their operations at full capacity due to the power crisis has severely led to shrinkage of profits for them. Thus, following cost-cut strategies, firms have to make labour force redundant, contributing less to the GDP and economic growth.
Moreover, the expansionary fiscal policy which includes (increasing taxes and spending on infrastructure development) is another way to put an economy on the path of developed economies of the world. Regrettably, tax — the major source of money resource for the country — in Pakistan has its own grim history. Tax collection simply remains a tough task in Pakistan. People are not willing to pay taxes to the state, claiming that their hard-earned money would go on to add personal assets of the power elite of this country instead of being spent on the well-being of the masses. But what has seemingly added fuel to the fire is the dysfunctional and poorly managed tax collecting institutions such as Federal Board of Revenue (FBR).
The steps for its improvement can include allowing it to work as an independent, impartial, transparent, accountable and professional outlet. Such reforms will surely make this core institution a modern, effective and efficient tax administration. Hence, this will induce taxpayers’ confidence in FBR which lead to increase in tax collection in an equitable and fair manner. Eventually, the greater the amount of finance available, the higher the chances of it being allocated for the infrastructure development (roads, telecommunications, water, sewerage). This will help create jobs, generate income for the millions and trigger economic activity.
The expansionary monetary policy which includes (lowering interest rates and expanding money supply) is used across the globe to influence the economy. The increasing of the money supply, however, runs the risk of inflation and may contract demand levels in the economy. On the other hand, an interest rate determines the saving, investment, and spending of the country. This is one of the most popular tools used to spur economic activity and attracts investment from abroad.
Pakistan, having 5.75% interest rate for the last couple of years, seems to be doing something right. This way, investors find it cheap to borrow money and invest in setting up the business infrastructure; public choose to spend money resource because saving is not feasible as the return in the form of interest rate is low. Thus, the borrowing, investment by firms and the spending tend to increase the demand levels in the economy which will create a huge demand for labour force, enhancement of production level i.e. GDP and improve the standard of living of the people.
To conclude, Pakistan has, undoubtedly, good economic prospects. For past four years, Pakistan has witnessed 81% rise in tax revenue which is, seemingly, a big plus. This year’s budget showed a 5.3% growth in GDP which is highest and the first time in over a decade. CPEC — a multi-billion dollar project — has the potential to turn Pakistan and make it an Asian tiger. The economic prosperity, reducing a gap between ‘haves and have-nots’, offering millions of jobs to the people of this country are likely to be the resultants of this project.
Finally, the milestones such as Benazir Income Support Program (BISP) — a social safety net program — should be expanded and promoted to eliminate poverty and unemployment; its beneficiary’s numbers reached to approx. 6 million. Surely, Pakistan needs to move along with structural reforms by locating root causes of the problems and challenges, its economy faces.