Present economic crisis of Pakistan

Present economic crisis of Pakistan 

Present economic crisis of Pakistan 

 It seems there is no light at the end of the tunnel. From the government to the common man, everyone is looking for a remedy, but nothing is in sight. Both thought there would be a new moon on the horizon. Right now, inflation is working like a black hole and swallowing the hard earn money of hardworking and honest countrymen. Pakistani currency has lost its power, price hiking has become a norm of the day and if one is interested to see the dark side of the coin, a heartbroken situation can easily be seen.

Being the biggest stakeholder of the country, the foremost responsibility lies on the shoulder of the incumbent government to get rid of the country from this situation. An adage says, if there is a will, there is a way. Some suggestions are being given here to address the issue. A “country fund” should be formed under the supervision of the Supreme Court. As an initiative and trust-building measure, the top landlord and industrialists-cum politicians should donate one-fourth of their earnings. Overseas Pakistanis may also be requested to generously donate to that fund. Imported food items, garments and tobacco should be taxed as an extra fifty percent under this fund. Landlords having 500 or more square yards, may be brought into the net of ten percent extra property tax under that fund. Three lakh rupees monthly earner may be asked to pay an extra five percent under the same fund. Business communities should be taxed according to the volume of their business turnout. There is always room to improve the quality of argument so I do hope some sane voices may contribute to giving a better structure to the above-mentioned views.

Present economic crisis

Pakistan now faces daunting challenges in dealing with the economic crisis to meet its balance of payments needs and avoid economic default.

The budget deficit in the outgoing year 2021-22 is expected to be around Rs5,200 billion. Circular debt in the power sector is going to be Rs2,500 billion. Trade deficit has increased by 58% to about $45 billion whereas current account deficit would be around $16 billion.

Consequent to high imports and pressure on exchange rate, the forex reserves declined to $9.7 billion, which is hardly sufficient to meet 1.5 months of imports.

Pakistani rupees falling against US dollar 

Gross public debt increased to Rs44,365 billion or 75% of GDP. Consequently, the debt servicing would be around Rs3,900 billion during the next financial year. Total external debt and liabilities increased to $128 billion by March 2022.

Government is in a difficult situation since it will have to pay $21 billion to the international creditors for external debt servicing during the next financial year.

Country is facing a serious economic crisis in an environment of political turmoil and uncertainty.

If timely policy actions and corrective policy measures are not implemented, country can face a default and a crisis like Sri Lanka, which will have far-reaching implications for inflation, growth and employment and will affect the poor and the vulnerable segments of population.

Pakistan and IMF

Pakistan has no choice but to accept tough IMF conditions in order to restore the IMF programme to avert an economic default.

We all know that the country has already undertaken 22 IMF programmes in past and IMF policies and programmes have not proved to be a panacea to address the country’s economic woes.

It is noteworthy that most of our economic problems are spanning over the last 15 years as the country has been maintaining high budget and high current account.

Unfortunately, these deficits have been financed through borrowing from abroad, which has increased the debt burden on the country.

The nation with nuclear capability now faces a dilemma owing to inappropriate macroeconomic expansionary policies, higher government expenditures, losses of state-owned enterprises, untargeted subsidies, fixed exchange rate policy until 2017, and import-driven expansionary fiscal policy of the outgoing government in 2022 that led to a high current account deficit and put pressure on the exchange rate resulting in a persistently high double-digit inflation rate.

Though the new government has taken measures for removal of subsidies on petroleum products and put restriction on imported non-essential items, the country needs an immediate political consensus on a charter of the economy backed by the establishment to avoid an economic meltdown.

Hard choices are required throughout the following couple of months to stop the discharge attributable to overspending and over-bringing in.

Pakistan, first of all, necessities to restart IMF subsidizing by carrying out monetary changes to reestablish its validity in the business sectors, alongside continuation of CPEC supporting.

Changes to lessen high exchange and current record shortfalls would require significant reductions in consumptions and imports, however without unfavorably affecting the average cost for most everyday items of low-pay families whose lives have become hopeless because of relentlessly high expansion throughout the course of recent years.

The public authority's financial change program should remember decrease for monetary and current record shortfalls by half over the course of the following one year by diminishing monetary deficiency by Rs2,000 billion and unnecessary imports by $10 billion consumed by the rich tip top.

Import decrease should be accomplished in the initial three months to stay away from a financial breakdown and stop drop of Pak rupee against US dollar.

This is fundamental for the belt-fixing of upper-pay families, to convey a message that poor are not made survivor of the financial bungle brought about by the past government. The financial change program should envelop the accompanying measures:

In the first place, through duty and credit arrangements, we should limit development of exceptionally import-subordinate enterprises (vehicles, extravagance products, hardware, and so on) creating for the homegrown market.

Second, proclaiming all sending out ventures as tax-exempt assembling units, and guaranteeing to give them all utilities at locally serious costs and sponsored credit. Bangladesh has expanded its commodities to $45 billion through along these lines.

Third, giving Rs800 billion of designated sponsorships as money award to 30 million poor and weak families through BISP vault framework to make up for the ascent in power, petrol and food costs.

When designated appropriations are set up, market costs of these merchandise can be expanded through higher duty rates and import obligations, which would give income to offering designated sponsorships to poor people and weak gatherings.

Fourth, the non-improvement government consumptions should be diminished by Rs1,000 billion through cutting waste in common and military organizations, cutting advancement use and lessening toss forward with the exception of dams and water the board, privatizing the misfortune making SOEs and decreasing untargeted endowments.

Fifth, there is a need to force a duty to raise Rs1,000 billion to pay off open obligation. This assessment can be forced on: (I) all resources (vehicles, agribusiness land, metropolitan land, and PSX shares) of people who own resources of more than Rs5 crore; and (ii) capital additions on land and offers, and benefits of enormous organizations. This is a penance that ought to be given by the rich first class to save the country.

6th, lessen loaning and store financing costs by 5% by decreasing markdown rate to 8%. This will decrease the expense of getting for the organizations and speed up the GDP development and business.

Low-pay retired people and widows can be given assurance of pay through higher rates on public reserve funds instruments. The objective ought to be to save around Rs700 billion yearly on interest costs on homegrown public obligation.

Finally, the country should impose a one-year embargo on all imported cars, cellphones, non-essential food and all manufactured home-use goods with the objective to reduce imports by $8-10 billion next year, which would reduce current account deficit, strengthen domestic currency against US dollar and accelerate growth and employment opportunities.