Measures to address Pakistan’s economic difficulties
AT the moment most of the Pakistanis are rightly concerned about the continuing devaluation of Pakistan’s currency and rising prices/inflation in the country, for which the Government Ministers are trying to give justifications.
It is a well-known fact that the main reason for inflation is Pakistan’s heavy foreign debt, which the Government is required to pay back in an annual instalment of 14 billion US dollars.
For this purpose, Pakistan has to further borrow from the friendly countries, the World Bank, the Asian Development Bank and mainly the IMF, because Pakistan’s foreign exchange reserves are not sufficient to pay the annual loan instalments.
The IMF gives loans on hard terms, like increasing the prices and taxes, thus causing inflation and devaluation of the Pakistani rupee.
To understand that why Pakistan has to repay 14 billion US dollars’ debt, including the interest annually, let us have a look at the position of Pakistan’s total foreign borrowing in the last 32 years, due to which by the end of 2021 our total foreign debt was 120 billion US dollars.
Pakistan’s external debt by the end of 1990 was $ 20 billion (when Benazir Bhutto was removed from the premiership) and by the end of October 1999 (when Gen Pervez Musharraf took over the Government)the debt was 38 billion US dollars.
In 2007 (when Gen Pervez Musharraf resigned) the debt was still 38 billion US dollars.
In 2013, when PML (N) took over from PPP, the debt was 58 billion US dollars, which means the PPP had borrowed $ 20 billion in five years.
The debt in 2017-18 was 93 billion US dollars, when PTI took over, which means PML (N) government had borrowed 35 billion US dollars as debt in five years.
And, in 2021 total foreign debt was 120 billion US dollars, which means the PTI government has taken 27 billion US dollars as debt in four years.
Hence, to pay back loans Pakistan requires 14 billion annually.Another reason which causes strain on Pakistan’s economy is that our imports are more than exports, and to fulfil the trade deficit, Pakistan has to borrow from the State Bank or get foreign loans, which also add to the inflation.
Pakistan also faces annual budget deficits, as to provide services to its 22 billion population, it has to prepare heavy annual budgets, which are required for maintenance/recurring expenditure, to run the Government and its institutions, to meet the needs of the country’s defence budget, for giving pays and pensions, and to cater for the development expenditure.
For annual budgets, the Government needs to muster sufficient funds through direct taxes, for which Pakistan’s tax base is very narrow as out of its 22 crore population, only seven hundred thousand people are the tax filers/payers.
This situation causes a heavy deficit in the budget making, and hence to meet the budget deficits, the Government has to resort to indirect taxes, get additional domestic and foreign loans, which also increases the inflation and the value of the Pakistani Rupee is devalued.
Moreover, due to importing petrol and LNG at higher cost, prices of these commodities have to be increased in the country, which also becomes a cause for a rise in the prices of other commodities.
Also, this complex economic situation is being exploited by the black marketers and profiteers, who are increasing prices by hoarding the commodities as the Government has almost failed in pinpointing and punishing such people, thus further adding to the inflation.
In view of the above situation, to pay back foreign loans, avoid taking further loans, keeping the prices stable to help the poor and make Pakistan an economically self reliant and sovereign country, following immediate measures to be taken by the Government and the well to do Pakistani citizens, are suggested.
The Governments should focus on increasing agricultural/industrial production and expanding the IT sector for reducing the import of food items and enhancing exports to boost the country’s foreign exchange reserves.
Also a large scale skills training of the Pakistani youth be organized by the Government to send well trained manpower abroad to substantially add to the remittances already being sent by the Pakistanis working abroad.
By doing so, Pakistan will gather sufficient forex reserves to pay for imports, repay foreign loans, stop taking further loans to return the loans, cater for the defence needs and keep the value of the Rupee stable and keep inflation under control.
The 33 percent Pakistani people, who are economically sound, should help Pakistan by voluntarily getting into Pakistan’s tax net, as taxpayers.
If that is done then Pakistani governments will have a sufficient annual tax amount to make progressive, deficit-free and development oriented budgets, without getting foreign loans.
Also the governments will have funds in their hands to increase pays/pensions and daily wages and pay subsidies for the needy people, which will also help in controlling/fighting the inflation.
However, as a quick measure, joining Pakistan’s tax net voluntarily by 33 percent economically sound Pakistani citizens is the key to resolving its immediate issues, for the progress of its economy and facilitating the life of about 40 percent poor people.
So, let us sacrifice a little by joining the country’s tax net to make our country economically self-reliant and sovereign and help its poor to live comfortably.
—The writer is also a former Research Fellow of IPRI and Senior Research Fellow of SVI Islamabad.
