Economic Conditon Of Pakistan
Economic conditions of Pakistan have become a toughest challenge for a newly elected government. Yet there is a light of hope on the other side of this darkest long tunnel which means that these adverse conditions are not irreparable or irreversible. We need to be very much focused toward opportunities available and to let the storm of repayments due this year be settled. These repayments are against unplanned aggressive loans taken by previous regimes to check inflation, avoiding devaluation, controlling interest rates and to fuel non-developmental expenditures rather increasing Exportable Business Activities instead of import based economic growth.
Present Government is under heavy criticism on bringing inflation to double digit, devaluation of Pak-Rupee and increasing discount rates. Some experts are of the opinion that the current economic down turn is a result of avoiding International Monetary Fund (IMF) to defend PTIs pre-election claim; going IMF is a suicidal. Is it fair to verdict against a newly established government on its Economic policies where evidently, the biggest indicator of control over Economy i.e. Current Account Deficit decreased significantly along with Trade Deficit? Then why PTI is being blamed for the financial crisis they inherited? Boasting of not going to IMF, overestimation of foreign remittance, no massive recovery from accountability, inability to increase direct taxation and finally non fulfilment of 100 days planned targets, formulated this public opinion.
According to available statistics, inflation has recorded highest of last 5 years. It reaches to almost 9.4% in the month of March 2019. GDP growth rate slowed down and according to Asian Development Bank (ADB) Forecast it will end up to around 3.9% in Financial Year 2019. GDP was around 5.7% when PMLN completed its 5 years. Massive devaluation took place in Current Financial Year where Rupee lost its value against dollar by almost 26 Rupees. Another factor that has jolt down the business activates; the interest rate phenomenon. State Bank of Pakistan has increased Discount Rate almost a double of last regime due to increase in inflation. This has increased financial cost of industries having credit lines with Banks to meet their working capital exigencies. But this is not end of the story.
Under PMLN control, the government of Pakistan took external loans of almost $35 Billion Dollars. By taking such huge loans they tried to control Dollar vs PKR parity artificially which actually was the outcome of their inability to bring down Trade Deficit which further translated into huge Current Account Deficit that accelerated more than GDP growth. Imports were increased multiple times to that of Exports and Pakistan had become a country lucrative for imports due to artificially controlled Pak Rupee. On the contrary Exportable item could not get their customers being expensive owing to same reason. Another blunder of the regime was to encourage import of those consumable items which otherwise are also manufactured in Pakistan. Therefore local industries that can be checked through quality control and could have resulted in producing quality products which in return could have saved foreign exchange, lost their business grounds gradually. Cheaper and superior quality consumable items and lower Dollar rate translated into decrease in inflation numbers resulted in lower discount rates contrary to present situation. Non Developmental Expenditures, just for cosmetic surgery of Economy to get votes in shorter run, like Metro Train etc, had consumed billions of Dollar which otherwise could have spent over projects from where revenues may be generated for repayment against these loans in longer run.
Current Account Deficit (CAD) and Trade Deficit figures under present regime show that government has controlled these two fundamentals of Economic System. The current account deficit plunges by 59% in February 2019 compared to January in this financial year. PTI inherited a massive CAD which stood at $18.9 billion in FY18 which has been the cause of dwindling reserves. However, since the beginning of this year, there has been persistent decrease in CAD as it fell by 47pc month-on-month in January 2019. During 8 months of Financial Year 2019, CAD fell to $8.844 billion, down 22.5pc, from $11.421bn in same period last year. Asian Development Bank also predicted that CAD is expected to ease in FY2019 equivalent of 5.0% of GDP which will narrow further to 3.0% in FY2020 with easing macroeconomic pressures on the external accounts. According to this theory when CAD will narrow to some particular level it will bring economic activities of Pakistan near to real values according to the law of demand and supply. Moreover bringing down imports will controlled foreign exchange loss. However behind getting these results PTI is ruining lives of general public and small medium enterprises by injecting inflation which resulted in increasing Discount Rates and massive devaluation of Pak Rupee which needs to be fixed through other measures.
Increase in direct taxation is a key to control fiscal deficit rather increasing General sales Tax (GST) rate and spreading it out to more products whether it is consumable item, medicine or Utility Bills. This will control inflatory pressure on general public without effecting Tax Collection. Implementation of Direct Taxation is not an easy task therefore previous
governments failed to increase its share in tax revenues. There should have taken some serious and effective measures to significantly broaden the direct tax base by bringing the affluent and non-tax paying individuals into the tax net. Those who are liable to pay taxes should be made to pay taxes rather than those who are not supposed to bear this cumbersome tax burden like GST. Direct taxation is a preferred taxation system in the civilized world. In UK, the direct taxes (income tax, national insurance contributions, property tax, corporation tax etc.) constitute more than 60% of the countrys tax revenue whereas it is around 12% in Pakistan. Multinational Companies who have manufacturing facilities in Pakistan prefer to import raw material and other inputs over purchasing it from local vendors due to trust deficit and quality control issues. Same is the case with MNC food chains (restaurants) where most of the inputs are being imported. Moreover these companies are earning huge profits due to the fact that local brands are not preferable by end consumer. After earning huge profits these MNCs are also transferring Dollars back to their Origins through outward foreign remittances which is a real main leakage to foreign exchange. To tackle this dilemma, first of all, regulation for MNC manufacturing units to use locally available inputs should be established with an additional clause to control outflow of foreign exchange in shape of dividends by reinvesting the same in other profitable local businesses through Private Equity Management Companies. It will also require a strong and corruption free quality
control department so that inputs of international standard may be available locally for MNCs. Assembling of Cars is another most important MNC segment where companies having Assembly line here in Pakistan, imports finished parts and assemble it into Pakistan with no technology transformation. This also undermines the growth of SMEs related to auto parts manufacturing which otherwise can generate employment. Regulations required for these car assembling companies where these companies should be encouraged to establish manufacturing units instead of assembling lines only. It will not only result in growth of GDP but the technology transfer will enable us to make our own facilities in near future with same standards.
Promoting agriculture is another way to increase exports rather than heavily depending on Textile sector only. It will also reduce input cost and import of cotton for Textile sector resulting a very positive impact on Balance of Payments. Furthermore Pakistan should negotiate China to import its Agriculture Products which can result in earning upto $12Billion Dollars as China imports Food amounting to $120Billion Dollar out which a 10% can be our share being a strategic partner in China Pakistan Economic Corridor (CPEC). In this regard Government need to facilitate and educate farmers for high yield cultivation techniques including drop irrigation for better utilization of already available limited water resources. Improved seeds, adulterated pesticides and fertilizers bear much importance and shouldnt be neglected. Further to improve yields next step is storage and transportation of these perishable nature products. For that particular purpose, government should encourage local transporters by providing them soft loans for upgrading their vehicles with cold storage facility and ensure availability of warehouses on rent alongside the corridor through nodes connecting China. Government can also negotiate China about their inward container of goods may aid to carry along Pakistani Exports to China to avoid time and cost instantly.
People of Pakistan have voted for a change to counter status quo. This change is not for mere a face off but for addressing real challenges like economic crisis and other related issues including image building measures, internationally. Government can take actions on above stated measure immediately to deal with grim situation Pakistan is facing due to some bad or unfortunate decisions of previous government rather boasting off or defending those rhetoric slogans of pre elections. These measures can reduce Current Account Deficit and control Balance of Payment Crisis and inflation which will ultimately result in lowering interest rates. By promoting Made in Pakistan Products Foreign Exchange will be saved which will also lower the pressure on imports that other way round results in getting more loans to bridge trade deficit. Blaming previous regimes now no more a card for sitting government who is heading towards presentation of full year budget for next financial year. Present Economic situation has become a national issue which should be dealt with consensus on policies among all political parties.