In a triumphant speech, Mr. Khan paved the path of his government and has drawn the foreign policy line; he will adopt. He pledged to strengthen state institutions, promote savings and enhance revenue in order to get more taxes and benefit the country. Just after his speech, stock market gained 0.9 percent and rallied 1,564 points during the week, taking KSE-100 index to 42,786 levels, up by 3.8 percent wow, most in 17 weeks. During Post-election session only, KSE-100 ends with 750-point gain. US Dollar has dropped almost Rs.6 in open market within 4 days. US dollar being traded at Rs.127.5, which later in the day went down to be traded at Rs.123.5. All this progress is just because the trust of investors has been revived after the smooth transition of political government.
This is third consecutive democratic transition in Pakistan, but at grounds, economic situation is not good enough in spite of comparatively stable democratic decade it experienced. There are number of key economic challenges that Khan’s government need to tackle down quickly.
The first and foremost challenge need to tackle is easing a foreign-reserves crunch. Pakistan’s buffers have dropped at the fastest pace in Asia to $9.1 billion as a result of swelling imports and debt. Fewer reserves connote; the nation has fewer funds to pay for imports to keep economic growth improving and for the central bank to maintain monetary stability. “Pakistan’s heightened external vulnerability is the chief credit challenge in the near-term for the new government” Christian Fang, an analyst at Moody’s Investors Service.
The next inevitable step may be a bailout from the International Monetary Fund. It may be a tough decision as loans come with conditions such as reigning in fiscal deficits and tighter monetary policy, but is unavoidable. As expected future finance minister, Asad Umar said “All options are open to overcome economic crises and the chance to consult IMF cannot be ruled out. “Previously, since 1980 Pakistan had 18 bailout programs and now may seek $10 to $15 billion from the Washington-based lender. This time conditions may be tougher as Pakistan did not complete structural programs of IMF last time.
Trade deficit has also widened because of low growth rate of exports and high payments to import billings. That has driven up the current-account deficit by 42 percent to $18 billion in the year through June. As current balance weakened, Moody’s investor service cut the credit ratings of Pakistan from stable to negative.
Another issue is tax revenue generation. Pakistan’s tax to GDP ratio is lowest among the big economies of Asia. Major source of government revenue is indirect taxes, while still major part of untaxed money is in real estate and saving instruments. Khan’s government need to focus on increasing direct tax pool and by tapping non-declaration income, Pakistan can double tax revenue to 8 trillion rupees in just two years. Nation has high hopes that Khan will fulfill his promises that he has pledged to nation in his victory speech as his past is clean and not tainted.