STATE OF THE ECONOMY | EDITORIAL

1 DECEMBER 2016
by: EDITORIAL
in: ECONOMY

Against the grain of the praise international financial institutions have been lavishing on
the Pakistani economy, the State Bank of Pakistans State of the Economy Report 201516 released earlier this month painted a much more dismal picture. The SBP has noted
that the Pakistani economy faces serious challenges. Agreeing with the governments
macroeconomic stability claims and noting that a higher growth rate in the country is
imminent, the bank has still raised a number of alarming markers that can destabilise the
economy. It pointed to high levels of public debt, low investment and saving levels,
declining exports, reliance on temporary measures for taxation and low levels of social
spending as the major concerns for the economy. Note that this does not include political
instability, which is one of the major factors the government has offered when explaining
why it has been unable to meet the targets it sets for itself. The SBP report does,
however, mention the cost of terrorism to be an astronomical $118 billion to the
economy. The low level of private sector investment confirms that businesses have a
rather low level of real confidence in the economic recovery narrative. Similarly, the
declining interest rates have made it less attractive for individuals to put their savings in
short to long-term investment schemes or bank accounts. Moreover, it is the trend of
increasing imports amidst low global oils prices as well as Pakistans declining exports
that could create a major foreign reserves crisis soon.
The taxation regime remains a major concern as big sectors remain outside the tax loop
while others have been brought in through fairly controversial measures. Low oil prices
have been a boon to the economy but the level of public debt has increased under the
PML-N government by around Rs2.3 trillion to Rs19.7 trillion. The debt-to-GDP ratio is
still over 60 percent, despite the governments promises to bring debt levels down to the
required ratio. The SBPs report also tries to balance the high praise that the government
has received from abroad and asks the government to remain on its feet and address
the key challenges it faces. There is a need for decisive action on issues such as tax
collection, instead of the current approach in which tax measures are announced, then
renounced, before being announced again. There have been complaints that the
economy is run in an ad-hoc manner. There is no doubt that Pakistan has high economic
potential but any good work by the government will end up being wasted if structural
issues such as implementing a proper tax regime and spending on social services are
not sorted out quickly.