Depending on which perspective you look at it from, Pakistan’s economy can be seen in either a positive or a negative light.
The endless vicious cycle of debt and the effect of it on the country is detrimental, in October of 2018 there was a statement from the government saying that Pakistan were ‘desperate’ for loans at a conference in Saudi Arabia.
The lack of Tax’s could be a possible factor to blame for the breakdown of the economy. The authorities have not been successful in creating an effective tax collection regime. Only an astonishing 1% of the people pay direct income taxes, bearing in mind the population of Pakistan is a staggering 220 million. On the other hand, there are some reforms taking place to restructure the economy. For example, 800,000 new tax filers and dramatic increases in tax collection are the most promising signs of an emerging fundamental paradigm shift.
Furthermore, due to financing the deficit through unrestrained borrowing indicates to that the future generations will hold the economic burden. The fundamental arrangement methodically disincentivises constructive activity in the real economy. Through research I found in an article that ‘economic growth slowed to 3.3 per cent in fiscal year 2019 a 2.2 per cent drop from the previous year. The fiscal deficit increased from 6.4 to nearly 9 per cent over the same period. Inflation soared to a five-year high.’ This highlights the colossal economic struggles the country has dealt and is dealing with.
The debt in the Public Sector has increased a staggering amount. This could be due to the continued recourse to domestic borrowing means that private banks are content with lending money to the government rather than providing much-needed credit for the private sector. The imperative of revenue generation also distorts the tariff policy and undermines private sector competitiveness. However, in 2019 there were many signs that gave a positive and hopeful outlook for Pakistan’s economy. There was a long period of time where there were only publications of current account deficits but eventually there was a surplus. The stock market rose by 8,000 points in a span of a few weeks.
The pressure on Pakistan’s foreign reserves were relieved by the new financial packages from United Arab Emirates, China and Saudi Arabia. They increased from $7.6 to $9.4 billion between January and September. Foreign investment surged overall, particularly with short-term bond acquisitions. Credit rating agency Moody’s to give Islamabad a raising of Pakistan’s economic outlook from negative to stable, which was motivated by a few factors, relevant to each other. Such as international investors that put their input into Pakistan, foreign direct investment increased by 200% over the first half of this year. The success of this can be accredited to foreign investors finding higher returns on local current bonds due to the devalued Pakistani rupee.
As it seems from the current standing of Pakistan’s economy is that there is much room for improvement, however, from the improvements in 2019 it is currently heading in the right direction. There will be progress and setbacks, dips and peak periods, however, with enough will power and effort put into creating a secure structure for Pakistan’s economy, it has the potential to thrive.
By Tahira Rahman
· https://www.worldbank.org/en/country/pakistan/overview
· https://tribune.com.pk/story/2109528/6-positive-signals-rising-pakistans-economy/
· https://www.eastasiaforum.org/2019/12/23/another-tough-year-for-pakistans-economy/
· https://www.aljazeera.com/indepth/opinion/pakistan-economy-sinking-190628174320798.html
· https://www.aljazeera.com/indepth/opinion/taxing-rich-pakistan-fiscal-crisis-181029084248017.html
· https://www.dw.com/en/international-investors-pile-into-pakistan/a-51506141