Challenges ahead for Pakistan on its lengthy journey
Published on: October 16, 2023.
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An Overview of Pakistan’s Economy: Recent Enhancements and Lingering Issues
Progress has been observed in Pakistan’s economic landscape lately. The tax collection for the first two months of the present fiscal year has surpassed the Rs1,183 billion mark, reaching Rs1,207 billion, thereby eclipsing the initial projection.
Of significant consideration is the 41% hike in income tax, which has witnessed a rise from Rs347 billion to a whopping Rs488 billion.
More encouraging news is the noteworthy increase in the forecasted production of Pakistan’s main staples. Pakistan rice output and cotton production are projected to exceed previous figures considerably. The cotton yield is set to outdo last year’s 5.6 million bales by over double, achieving an estimated 12 million bales.
Meanwhile, wheat production is poised to set new records by exceeding 28 million tons, thereby surpassing the previous highest record of 27.46 million tons set in 2020-21.
Rice exporters are hoping to reach new heights this financial year with a predicted turnover of $3 billion for white broken rice and 25% broken rice.
Persistent Challenges in the Economy
Despite these promising developments, several challenges continue to pose a threat to the economy’s long-term stability and growth. Pakistan urgently needs to strengthen its foreign exchange reserves, but unfortunately, the factors that can contribute towards this improvement are demonstrating unfavorable trends.
Exports, rather than improving, came down from $4.7 billion to $4.3 billion in the first two months of the current fiscal year, a drop of over 6%.
The gas sector poses another central issue that requires immediate intervention due to problems such as shortages, mounting circular debt, and escalating losses.
The third prominent concern involves the unchecked surge in government expenditure, which might lead to the budget deficit exceeding the limit of 7.5%.
Improvements Needed in Trade and Exports
Regarding exports, the past 15 years have witnessed no significant trade policy reforms. Most of the efforts have been concentrated on securing one-sided tariff advantages via GSP Plus-type systems. With the European Union recently extending its GSP Plus system for another four years, it appears as though the private sector and the government might not make any serious attempts towards gaining more market access or modifying its import policy soon.
However, taking past experiences into consideration, it’s vital to reform trade policies. Despite the duty-free access granted by the European Union leading to substantial growth in exports to the EU, our global exports, however, remained stagnant during this period, causing an annual loss in our global export market share of 1.45% annually.
Our peer countries such as Malaysia, Mexico, and Thailand not only managed to maintain their market shares but even managed to double them. This points to the inefficiencies of GSP Plus and emphasises the need for wider regional and global integration.
Addressing the Emerging Crisis in the Gas Sector
The gas sector is another critical area that needs immediate attention. Over 40% of our energy requirements are fulfilled through both domestic and imported gas (LNG). As our reserves deplete rapidly, the reliance on imported gas is steadily on the rise and is expected to cater to almost 80% of our requirements in the next five years.
A projected daily loss of Rs1 billion and a cumulative circular debt figure of Rs2,900 billion are indicative of a sector in crisis. Due to the consumer gas prices not being duly revised in relation to international prices in the last decade, it is critical that the government takes urgent mitigative measures.
Reducing Expenditure
The IMF has estimated that the budget deficit may exceed the official target of 6.5% and potentially reach 7.6%, amounting to a shortfall of Rs1.3 trillion more than the figure estimated in the budget in June 2023.
Increased focus on privatisation might enable the government to reduce certain subsidies, but further actions must be taken to ensure fiscal discipline.
Source: tribune.com.pk
