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There is no doubt that the economy has made a strong recovery. But much of the fiscal stabilization was achieved by introducing structural reforms, such as broadening the tax base, privatization of loss-making state-owned enterprises and power sector reforms, rather than implementing IMF conditionality.
The current account deficit, which was $1.6 billion in the first two quarters of FY24, turned into a surplus of $944 million, largely due to lower oil prices in the international market, which added substantially to the import bill. Decreased.
Remittances increased by 33% and exports by 12.5%. Single-digit inflation also helped the central bank cut policy interest rates for the 5th time in a row. It has now come down from 22% to 13% in 18 months. The market capitalization of the Pakistan Stock Exchange rose by an astonishing 80 percent and its 100 index hit a record high.
According to State Bank Governor, Jameel Ahmed, the interest rate cut helped the government reduce its mark-up cost by Rs 1,500 billion, which is roughly equivalent to the annual development program of the public sector. He said that this year the government has to pay 26 billion dollars to repay the debt. Of this, he has already paid $10.4 billion. Loans worth 5 billion dollars from friendly countries like China, Saudi Arabia and United Arab Emirates will be repaid. In addition, $3 billion has been pledged by international donor agencies and financial institutions.
The central bank governor said the bank will have to provision $5 billion in the last two quarters of FY25 to meet its debt obligations. He said that in view of the tremendous growth in remittances, exports, there will be no problem in paying this amount. He said that the reserves of the central bank have touched the level of 12 billion dollars.
Prime Minister Shahbaz Sharif and Finance Minister Muhammad Aurangzeb can take credit for achieving economic stability. The Prime Minister also praised Army Chief General Asim Munir for his help in ensuring economic stability. However, this economic stability came at the cost of the common man, who faced economic hardship through heavy taxes and steep hikes in electricity and gas rates.
Apart from taxing already imposed taxes and increasing rates of indirect taxes like GST, excise and customs duties, the government failed to implement the tax reforms it had promised under the IMF programme. Finance Minister has repeatedly said that tax will be imposed on all sectors. However, apart from rounding up non-filers, it has achieved little.
Provincial governments have so far shown little interest in collecting taxes on agricultural income. The largely untaxed retail sector is also giving the government a tough time. The FBR chairman has acknowledged the fact that the sector is a tough nut to crack. The PML-N-led government is in a catch-22 situation. Whatever support base it has left is among the businesses that need to be taxed. He realizes that forceful implementation of the proposed tax measures will further weaken him politically.
The government’s efforts to privatize state-owned enterprises have so far been a half-hearted exercise. Bidding for PIA turned out to be a disaster as the only bidder offered Rs 10 billion to buy 60 per cent stake in the national flag carrier.
At 9.2 percent, Pakistan’s current tax-to-GDP ratio is significantly lower than the global average of over 20 percent. For FBR, the target of Rs 12,970 billion for the financial year 2024-25, despite a 30 per cent increase over the previous year, appears elusive. A revenue shortfall of Rs 344 billion in the first five months of FY 2024-25 has highlighted the challenges in meeting these targets. Repeatedly small budgets to address income gaps disrupt economic stability and erode public confidence in government fiscal policies.
The regressive nature of Pakistan’s tax system places a disproportionate burden on the salaried class and small businesses. Recent reforms, such as the removal of tax incentives for export sectors and the increase in taxes on salaried individuals, have put a strain on disposable income and hampered business growth. These measures, aimed at broadening the tax base, fail to address the underlying problem of tax evasion and the informal economy, which constitutes a significant portion of Pakistan’s GDP.
Despite the imposition of a circular duty surcharge of Rs 3.23 per unit on electricity consumers during the financial year 2023-24 and heavy audits and scrutiny of independent power producers, the revolving debt has risen to Rs 2.4 trillion and it seems that electricity There is no possibility of an increase in the rates. decrease in the near future.
In its last monetary policy statement, the State Bank observed that core inflation eased marginally in November while consumer inflation expectations rose. The inflation outlook is sensitive to several risks, including additional measures to cover revenue shortfalls, a rebound in food inflation and rising global commodity prices.
So far, the government’s efforts to privatize state-owned enterprises have been a half-hearted exercise. PIA’s bid turned out to be a disappointment as the sole bidder paid Rs 10 billion to buy 60 per cent stake in the national flag carrier. Offered.
Only real estate development company, Blue World City, which had no experience in the aviation industry, participated in the bidding process, placing a bid that was below the reserve price of Rs 85 billion. This bid was rejected by the Ministry of Privatization.
The government could not make any progress on the privatization of state-owned power generation companies and power distribution companies.
Prime Minister Shehbaz Sharif’s Oran Pakistan, a five-year national economic transformation plan aimed at revitalizing the national economy, and the Finance Minister’s call for consensus among political parties on a Charter of Economy are old wine in a new bottle. So far, no concerted efforts have been made to develop a strategy to deal with the structural problems of the economy.
Controversial election results, disputes over the role of the judiciary, terrorism along the Pakistan-Afghan border, attacks on Chinese workers and communal conflicts in Kurram have also dragged down sentiment.
The author is a broadcast journalist.
