Financial possibilities of Naya Pakistan
AFTER taking the oath of office, Imran Khan, first faced the domestic financial challenge which he inherited as legacy of the previous government.
It was a twin balance of payment and debt crisis with a large current account deficit as well as fiscal deficit.
To address the issue Khan’s government, on the one hand sought a bailout package from the International Monetary Fund (IMF), and slashed government’s subsidies spending in the energy sector along with unveiling an austerity budget to check the fiscal deficit and controlling government borrowing in the global market.
In addition, Pakistan, in collaboration and consultation with the IMF, stepped up several steps to improve the overall conditions of country’s economy and gained significant stabilization by raising tariffs to collect higher tax revenue and devaluating the currency and imposing heavy import duty which helped curtail the current account deficits.
These improving steps registered a hopeful situation for the balance of payment and debt crisis in the year 2020, by narrowing down the deficit to less than 1% of Gross Domestic Product (GDP), and stabilizing the Central Bank’s foreign exchange reserves in the same year.
Financial background of Pakistan: Pakistan, apart from implementing IMF-guided reforms achieved concrete gains on business operating climate and introduced several policies to improve the continuing situation.
In the year 2019, Pakistan earned a record revenue from domestic taxes without raising any tax in import taxes, resulting in improvement of world ranking and achieving primary surplus, although the economists of the country gave its credit to an increase in non-tax revenues rather than an increase in tax revenues, yet this growth in tax collection continued in the first quarter of the fiscal year 2021.
In respect to economic policy, the government introduced from January 2020 the second phase of the China-Pakistan Free Trade Agreement and as a result of renegotiation with Beijing Islamabad began to receive many concessions on Pakistani exports of goods and services which ultimately reduced the burden of tariff on Pakistan.
The agreement with China was termed as a significant milestone in country’s foreign policy as it expanded Pakistan’s trade with a country, earlier known for co-operation in defence and security fields.
At the time Imran Khan assumed office in Pakistan he found the country economically poor and weak with multiple problems such as flawed energy policies, spiraling fiscal deficit, grossly inadequate tax to Gross Domestic Product ratio, multiple bailouts by international agencies and under investment in education, health and skills sector which have marred the sustainable growth of the nation.
In particular, Imran’s party, the Pakistan Tehreek-i-Insaf (PTI), also identified antiquated governance and all-pervasive corruption and lack of political leadership as the reasons for the long-term decline in the economy.
With the coming of Imran Khan as the Prime Minister of Pakistan he set a reform programme for various sectors of economy and creation of a fiscal space of 9% of Gross Domestic Products along with a 5% increase in tax collection 2% reduction in wasteful expenditure and 2% reduction in public sector in losses of PSEs.
For further, it projected a target of a growth rate of 6%, inflation to be brought down to 7%, fiscal deficit to be brought down to 4.5 percent, tax revenue to be raised by 15 percent and a four-fold increase in welfare spending.
— The writer is Professor and Head, Department of Political Science, B N Mandal University, Madhepura, Bihar, India.
