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Inflation and Energy Price Hikes Devastate SMEs in Pakistan

Inflation and energy price hikes have taken a toll on small and medium-sized businesses (SMEs) in Pakistan, leading to bankruptcies and economic instability. Samina Fazil, the founder and President of the Islamabad Women’s Chamber of Commerce and Industry (IWCCI), has emphasized the urgent need for significant improvements to the country’s tax policy in order to secure a brighter future.

Impact on Businesses

Fazil attributes the damaging effects of inflation and skyrocketing energy prices to the collapse of numerous SMEs. To prevent further inflation, she calls for a halt on sugar exports, a measure that could potentially contribute to price stability and economic recovery.

Addressing the business community, Fazil highlights the unfeasibility of sustaining the current tax system, which has resulted in low revenue and reckless spending, leaving the country heavily reliant on borrowing. She emphasizes the urgent need for both short-term and long-term tax policy reforms, advocating for increased taxes on non-essential and luxury items.

Fazil believes that the government must make tough decisions to resolve economic challenges and implement recommendations from lenders to steer the country out of its current economic crisis. However, she laments that the impact of these reforms has primarily burdened the masses, while the elite have largely been spared.

Pakistan’s Tax System and Energy Policy

The flaws within Pakistan’s tax system have resulted in an estimated loss of Rs567 billion over the past seven years in a sector dominated by politicians. Fazil criticizes the country’s energy policy, pointing out that Pakistan has one of the lowest per capita electricity consumption rates globally, comparable only to Sub-Saharan Africa. The frequent increase in energy prices is pushing Pakistan further into energy poverty, hindering prosperity and economic development.

Despite increasing urbanization, Pakistan’s average electricity consumption per connection has hit a 20-year low, posing a real threat to the nation’s prosperity. Fazil highlights the discrepancies between Pakistan’s per capita income, rising unemployment rates, and the escalating electricity tariffs which are now comparable to the USA. She calls for a restructuring of the energy tariff system to promote sustainable economic growth.

Fazil also raises concerns about the overbilling practices by many DISCOS, amounting to billions of rupees. She emphasizes the need for immediate action to curb these practices.

Path to Economic Stability

Fazil suggests that a larger, medium-term IMF bailout, combined with financial support from friendly countries, is crucial to address Pakistan’s balance-of-payments issues. To unlock fresh IMF funds, Pakistan must demonstrate its commitment to genuine reforms that can revitalize the economy and provide long-term stability.

Source: Islamabad Post