Unsustainable fiscal deficit

#Unsustainable #fiscal #deficit

LAHORE: If Pakistan fails to resolve structural issues in its economy and continues a permanent fiscal deficit for more than 5-7 years, it may face debt crisis or economic elimination.

Although the present government has achieved some success in economic stability, it has yet to deal with numerous issues that are hindering long -term stability. The country’s annual fiscal deficit is viable as long as it receives financial support through domestic and external sources without debt crisis, hypertension or economic elimination. However, the stability of the permanent fiscal deficit depends on several factors.

Pakistan’s fiscal deficit has been permanently between 6-8 percent of the GDP in recent years, which shows that the government is spending more than the accumulation of revenue. For developing countries, a sustainable financial deficit is generally considered 3-4 % of GDP. Instead of generating the necessary taxes, the government keeps relying on borrowing.

This growing loan has significantly increased Pakistan’s debt burden. The total public debt of this country is 90 % of GDP, which exceeds the 60 % limit proposed by the IMF. The central bank’s policy rate is reduced by 11 % and a stable rupee also uses more than 50 % of government income in interest payments in this loan service. Due to the high level of debt, Pakistan is struggling to secure less cost -cost loans from donor agencies and relies rapidly to domestic banks and external lenders’ high interest, short -term loans, which Increases challenges.

Permanent fiscal deficit loses investors’ confidence and helps in currency deportation, which increases the cost of foreign loans payments and makes the deficit more difficult. As a result, the power to purchase high inflation further decreases, destroying economic instability.

The lowest tax globally in Pakistan is the GDP ratio, which is only 9-10 %. Without a meaningful tax reform, the government will continue to fight with the deficit financing. In comparison, India’s tax ratio reached a high level of 18.5 % in the financial year 2023-24, including 11.7 percent from the central government and 6.8 percent from the state governments. Unlike Pakistan, where provincial tax collection only accounts for about 1.0 percent of the federal tax revenue, Indian states play a far more important role in demonstrating a more balanced financial structure.

Some critics say the government lacks the will of imposing tax collection. Although it hesitate to implement the recommended reforms of the IMF and other financial institutions, these efforts are often half -hearted. Tax legislative lawmakers should be for example and pay their own taxes. Although Punjab and Sindh assemblies have approved the latest agriculture tax, its effective implementation is uncertain.

Policy makers have to acknowledge that global donors will not always save Pakistan. The government will have to create domestic resources instead of repeatedly relying on the IMF bailout. Without structural reforms, international lenders can withdraw support by making the deficit financing unbearable.

In the short term (1-3 years), Pakistan can continue to run deficit by borrowing extra loans. However, in the medium term (3-5 years), the loan service will be unstable if the economic growth is slow. In the long -term (for more than five years), without major reforms – such as expanding the tax base, expanding exports, and accelerating privatization – Pakistan will have a high risk of default, causing Sri Lanka to Economic instability will create.

To strengthen its economy, our country will have to increase its tax base by taxing retail and agricultural sectors, while reducing non -development costs, including subsidies and government expenditures. Exports and foreign direct investment (FDI) increases to create foreign exchange. At the same time, to ensure long -term economic stability, the country will have to reduce dependence on short -term external debt.