Managing a household and a nation share striking similarities. Both thrive when there is wealth, education, health, and sufficient daily amenities. However, these provisions are intricately tied to financial stability. When finances are in order, operations run smoothly; if not, internal strength and resilience against external pressures are compromised.
Currently, Pakistan is grappling with severe economic challenges. Achieving economic prosperity is now the top priority, critical to our national security and survival. To chart a path forward, we must first identify the primary economic issues facing Pakistan.
First of all, for decades, Pakistan has been heavily reliant on debt. According to the latest data shared with the Senate Committee on Economic Affairs, Pakistan’s external debt stands at $130 billion. Additionally, by November 2024, Pakistan must repay $27.47 billion in foreign debt, while total foreign currency reserves are only $14.57 billion. To deal with this possible crisis, the government is seeking more loans from the IMF, other international institutions, and friendly countries. However, the situation has deteriorated to the point where even our allies are hesitant to extend further loans. This sentiment was echoed in Prime Minister Shahbaz Sharif’s candid statement, “I have not come here to beg; it is an inevitable necessity,” which, despite becoming a source of humour and memes, underscores the longstanding economic policies employed by various Pakistani governments.
The second major issue is circular debt and capacity payments. According to the latest data from the Power Division of the Ministry of Energy, circular debt has reached Rs2.636 trillion. Media reports also suggest that Pakistan must pay capacity payments amounting to Rs2.8 trillion during the financial year 2024-25, surpassing the defence budget of Rs2.12 trillion allocated for the armed forces. Due to rising electricity costs, these payments are having a detrimental impact on Pakistan’s common people as well as the country’s economy.
The third major issue is growth model, heavily driven by consumption, exacerbates economic imbalances. Former SBP Deputy Governor Murtaza Syed highlighted, “Because we have a model of growth more driven by consumption than almost any other country in the world, whenever growth picks up, our import bill quickly rises.” In 2024, despite tight government policies, exports were $30.65 billion while imports were $54.71 billion, resulting in a $24.06 billion trade deficit. Even though the trade deficit this year is less than last year, the problem still exists because whenever the government loosens regulations, imports increase and the deficit grows as well. It will be very difficult for the government to strike a balance between sustainable growth and deficit
State-owned enterprises (SOEs) are also a big burden that continues to deplete resources and generate losses significantly. For the fiscal year 2023, the Finance Division’s Central Monitoring Unit (CMU) recorded total net losses of Rs202 billion, with profits from SOEs totalling Rs703 billion and losses of Rs905 billion.
Last but not least the most important issue is the tax collection system and policies that contribute to economic woes. Despite promises of tax reforms, successive governments have failed to deliver. The current budget includes high taxation, with increased sales tax and surcharges on higher incomes. Bringing those who do not pay taxes into the tax system should be the true goal of tax reforms, but the government has chosen the easiest route to tax already taxed. However, it will be disastrous for thousands of businesses and millions of people. This policy will discourage taxpayers. Another issue with the tax system is the impression and working of FBR. There is an element of fear of exploitation among the people about FBR. Taxpayers’ perception of FBR has to be improved to address trust deficits and promote compliance.
But the question remains: what are the underlying causes of each of these problems? In my opinion, our faulty economic policies and a lack of direction are the primary causes of our economic turmoil. Pakistan has endured a prolonged period of political unrest, financial losses due to the war on terrorism, climate change damages and inconsistent economic policies. We must acknowledge that long-term strategies and their efficient execution are necessary for economic development. Our closest friend China’s foreign minister, Qin Gang, on a visit to Pakistan categorically said “We sincerely hope the political forces in Pakistan will build consensus, uphold stability and more effectively address domestic and external challenges so it can focus on growing the economy,
Following the consensus, we must make crucial decisions regarding the country’s economy. We must increase revenue and reduce expenses. The government should prioritize local production using local materials to reduce imports and boost exports. Renegotiating agreements with IPPs that drain billions of rupees is also crucial. Developing a skilled workforce is essential for national development. Our youth, given the right education and training, can become a powerful force for economic transformation. Implementing skill-based education programs will ensure that our young population can contribute effectively to the economy. Furthermore, it is a matter of utmost importance to devise and implement an effective and acceptable tax policy. Government cannot keep sucking the blood of tax-compliant citizens and businesses. A well-devised tax policy will help to increase tax collection which will decrease the burden on the government. The government cannot continue to drain tax-compliant individuals and companies. A carefully thought-out tax plan will contribute to higher tax revenue, which will lessen the burden on the government. As a chairman of the Chainstore Association of Pakistan, I along with all tax-compliant retailers are ready to fully support the state in this regard.
Addressing Pakistan’s economic challenges requires comprehensive and strategic reforms. By implementing these crucial changes, we can pave the way for a prosperous and secure future. The decisions lie with our policymakers, and they must steer the country in the right direction to avoid remaining trapped in this dire economic situation.