ECONOMIC CRISIS OF PAKISTAN

1. TABLE OF CONTENTS
2. INTRODUCTION ................................................................................................................... 2
2.1 WHAT IS GROSS DOMESTIC PRODUCT (GDP)? ..................................................... 2
2.2 WHAT IS GROSS NATIONAL PRODUCT (GNP) ...................................................... 2
2.3 DEFINITION OF FINANCIAL CRISIS ......................................................................... 3
2.4 DEFINITION OF ECONOMIC CRISIS ......................................................................... 3
2.5 DEFINITION OF ECONOMIC RECESSION ................................................................ 3
2.6 DEFINITION OF ECONOMIC DEPRESSION ............................................................. 4
2.7 WHAT IS TRADE DEFICIT & BALANCE OF TRADE .............................................. 4
2.8 WHAT IS CURRENT ACCOUNT DEFICIT ................................................................. 4
2.8.1 HOW TO MANAGE CURRENT ACCOUNT DEFICIT ........................................ 4
2.9 WHAT IS EXTERNAL ACCOUNT DEFICIT .............................................................. 5
2.10 WHAT IS AGGREGATE DEMAND OF A COUNTRY ............................................... 5
2.11 WHAT CIRCULAR DEBT ............................................................................................. 5
2.12 DEFINITION OF DEBT SERVICING ........................................................................... 5
3. WHY PAKISTAN IS FACING FINANCIAL CRISIS WHICH IS LEADING TO
ECONOMIC CRISIS ...................................................................................................................... 6
3.1 PRIMARY REASONS OF PAKISTAN‟S ECONOMIC CRISIS .................................. 6
3.1.1 FISCAL DEFICIT .................................................................................................... 6
3.1.2 CURRENT ACCOUNT DEFICIT ........................................................................... 7
3.1.3 LOW TAX TO GDP RATIO .................................................................................... 8
3.1.4 DEBT SERVICING .................................................................................................. 9
3.1.5 POOR ECONOMIC GOVERNANCE ................................................................... 10
3.1.6 OVER DEPENDENCE ON FOREIGN AID ......................................................... 10
3.1.7 ECONOMIC STRUCTURAL WEAKNESSES..................................................... 11
3.2 SECONDARY REASONS OF PAKISTAN‟S ECONOMIC CRISIS .......................... 11
3.2.1 VOLATILE EXCHANGE RATE .......................................................................... 11
3.2.2 LOSS IN ENERGY SECTOR ................................................................................ 12
3.2.3 LOSS MAKING PUBLIC SECTOR ENTERPRISES ........................................... 12
3.2.4 POOR TAX STRUCTURE .................................................................................... 13
 3.2.5 LESS PUBLIC SPENDING ................................................................................... 13
3.2.6 INFLATION ........................................................................................................... 14
3.2.7 HIGH INTEREST RATE ....................................................................................... 15
3.2.8 POOR SME (SMALL & MEDIUM ENTERPRISES) SECTOR .......................... 15
3.2.9 LOW EXPORTS OF PAKISTAN .......................................................................... 16
3.2.10 LESS EASE OF DOING BUSINESS .................................................................... 16
4. SOLUTION TO COPE WITH ECONOMIC WOES OF PAKISTAN ................................ 17
4.1 REDUCE FISCAL DEFICIT ......................................................................................... 17
4.2 REDUCE CURRENT ACCOUNT DEFICIT................................................................ 18
4.2.1 INCREASED TAX-TO-GDP RATIO .................................................................... 19
4.3 ERADICATION OF CIRCULAR DEBT MENACE .................................................... 19
4.4 IMPROVED ECONOMIC GOVERNANCE ................................................................ 20
4.5 LEAST OR NO DEPENDENCE ON FOREIGN AID .................................................. 20
4.6 BOOST SME SECTOR ................................................................................................. 21
4.7 TURN LOSS MAKING PUBLIC ENTITIES INTO PROFIT MAKING .................... 21
4.8 MORE PUBLIC SPENDING ........................................................................................ 22
4.9 STABILISED EXCHANGE RATE............................................................................... 22

1. INTRODUCTION

1.1 WHAT IS GROSS DOMESTIC PRODUCT (GDP)?

Gross Domestic Product (GDP) is the total monetary or market value of all the finished goods

and services produced within a country's borders in a specific time period. As a broad measure of

overall domestic production, it functions as a comprehensive scorecard of the country‟s

economic health.

1.2 WHAT IS GROSS NATIONAL PRODUCT (GNP)

Gross national product (GNP) is a broad measure of a nation's total economic activity. GNP is

the value of all finished goods and services produced in a country in one year by its nationals.
Consumption + Government Expenditures + Investments + Exports + Foreign Production by

Pakistani Companies – Domestic Production by Foreign Companies = Gross National Product

1.3 DEFINITION OF FINANCIAL CRISIS

A financial crisis is often associated with a panic or a bank run during which investors sell off

assets or withdraw money from savings accounts because they fear that the value of those assets

will drop if they remain in a financial institution.

A financial crisis can occur if institutions or assets are overvalued, and can be exacerbated by

irrational or herd-like investor behavior.

Pakistan‟s financial crisis stems from the fact that 2018 was a poor year for emerging markets.

Global monetary tightening, increased oil prices, and reduced investor confidence have

negatively impacted the country‟s already precarious economic situation.

1.4 DEFINITION OF ECONOMIC CRISIS

It is a situation in which economy situation of a country slows down gradually because of

financial crisis. Economic crisis brings forth falling GDP (Gross Domestic Product), rapid

downtrend of liquidity (cash out flow), and rising & falling prices of commodities because of

inflation & deflation.

1.5 DEFINITION OF ECONOMIC RECESSION

A recession is a macroeconomic term that refers to a significant decline in general economic

activity in a designated region. It is typically recognized after two consecutive quarters of

economic decline, as reflected by GDP (Gross Domestic Product) in conjunction with monthly

indicators like employment. Recessions are visible in industrial production, employment, real
income, and wholesale-retail trade.

1.6 DEFINITION OF ECONOMIC DEPRESSION

A depression is a severe and prolonged downturn in economic activity. In economics, a

depression is commonly defined as an extreme recession that lasts three or more years or leads to

a decline in real gross domestic product (GDP) of at least 10 percent.

1.7 WHAT IS TRADE DEFICIT & BALANCE OF TRADE

The balance of trade is the difference between the value of a country's imports and exports for

a given period. The balance of trade is the largest component of a country's balance of payments

(the difference in total value between payments into and out of a country over a period).

Trade Deficit = Total Value of Imports – Total Value of Exports.

1.8 WHAT IS CURRENT ACCOUNT DEFICIT

The current account deficit is a measurement of a country‟s trade where the value of the goods

and services it imports exceeds the value of the products it exports.

1.8.1 HOW TO MANAGE CURRENT ACCOUNT DEFICIT

A country can reduce its existing debt by increasing the value of its exports relative to the value

of imports. It can place restrictions on imports, such as tariffs or quotas, or it can emphasize

policies that promote export, such as import substitution, industrialization, or policies that

improve domestic companies' global competitiveness. The country can also use monetary policy

to improve the domestic currency‟s valuation relative to other currencies through devaluation,

which reduces the country‟s export costs.

 1.9 WHAT IS EXTERNAL ACCOUNT DEFICIT

A situation in which a country pays more money to other countries than it receives from them, or

the difference between the amount paid and the amount received.

1.10 WHAT IS AGGREGATE DEMAND OF A COUNTRY

Aggregate demand represents the total demand for goods and services at any given price level in

a given period. Aggregate demand over the long-term equals gross domestic product

(GDP) because the two metrics are calculated in the same way. GDP represents the total amount

of goods and services produced in an economy while aggregate demand is the demand or

desire for those goods. As a result of the same calculation methods, the aggregate demand and

GDP increase or decrease together.

1.11 WHAT CIRCULAR DEBT

In such situation debt moves in a circle. One who lends money to other and other lends money to

next one and ultimately it makes a circle or string of creditors and debtors.

1.12 DEFINITION OF DEBT SERVICING

The amount of money required to make payments on the principal and interest on outstanding lo

ans, the interest on bonds, or the principal of maturing bonds. An individual or company unable t

o make such payments is said to be "unable to service one's debt." An example of debt service is

a monthly student loan payment.

 2. WHY PAKISTAN IS FACING FINANCIAL CRISIS WHICH IS LEADING TO

ECONOMIC CRISIS

2.1 PRIMARY REASONS OF PAKISTAN’S ECONOMIC CRISIS

2.1.1 FISCAL DEFICIT

A fiscal deficit is a shortfall in a government's income compared with its spending. The

government that has a fiscal deficit is spending beyond its means.

A fiscal deficit is calculated as a percentage of gross domestic products (GDP), or simply as total

dollars spent in excess of income. In either case, the income figure includes only taxes and other

revenues and excludes money borrowed to make up the shortfall.

Pakistan‟s budget deficit rose to the highest in almost three decades, ahead of the International

Monetary Fund‟s first quarterly review of a bailout program that sought to curtail a fiscal

blowout.

The deficit increased to 8.9% of the nation‟s gross domestic product in the year ended June

compared with 6.6% a year earlier, according to provisional numbers released by the Finance

Ministry.

In absolute terms, fiscal deficit during fiscal year 2018-2019 climbed to Rs. 3,444 billion which

is highest ever in the whole history of Pakistan since independence.

The tax revenues fell short of 13. Percent of GDP while non-tax revenues 1.1 percent of GDP

which mainly contributed to hike in budget deficit.

Tax revenues remained unchanged and did not show any improvement in absolute terms but fell

to 11.6pc of GDP in 2018-19 when compared to 13pc in 2017-18. Non-tax revenues last year

amounted to Rs427bn, almost 44pc lower than Rs760bn in 2017-18. As such, the non-tax

revenue amounted to just 1.1pc of GDP, exactly half the 2.2pc of GDP in 2017-18.

2.1.2 CURRENT ACCOUNT DEFICIT

Pakistan recorded a Current Account deficit of 3242 USD Million in the second quarter of 2019.

But in first month on financial year current account deficit shrunk up to 73% ($579 million) of
$2.13 as compared to last financial year. There is dire need of long-term policy to enhance

exports and limit imports.

2.1.3 LOW TAX TO GDP RATIO

Only 1% of the population bears the burden of tax for the expenditure for the population of 200

million. The government set the revenue collection target at Rs 4,398 billion for the fiscal year

2019-20 which seems a bit ambitious, as the government was only able to meet 67.7% of the

target in the first ten months.

The finance ministry‟s data said the overall tax to GDP ratio flattened out to 12.7pc in 2018-19

compared to 15.2pc in the last year 2017-18. Full year collections came in at Rs4.9tr compared

to Rs5.23tr a year before. Non-tax revenues last year amounted to Rs427bn, almost 44pc lower

than Rs760bn in 2017-18. As such, the non-tax revenue amounted to just 1.1pc of GDP, exactly

half the 2.2pc of GDP in 2017-18.

For the new fiscal year 2019-20, the International Monetary Fund (IMF) has imposed a

condition to increase the tax-to-GDP ratio to 12.6% by the end of the year. It will require the

FBR to jack up the ratio by 2.7% of GDP in one year, which has become unrealistic even

before the IMF board approves the loan on Wednesday.

2.1.4 DEBT SERVICING

Debt servicing is also one of the reasons for the decline in foreign reserves. Pakistan had paid

$11.588 billion as external debt servicing (principal and interest payment) in last fiscal year

2018-19, which had put pressure on the country‟s foreign exchange reserves. Pakistan‟s total

debt and liabilities are sharply increasing and have reached 29.861 trillion Rupees. Pakistan‟s

external debt accounts for 37.5% of country‟s nominal GDP of financial year 2018-2019 as

compared to 30.2% of country‟s nominal GDP.

The debt servicing of the country is rapidly increasing with the passage of the time, which is

pushing pressure on the country‟s external sector. The reserves are tumbling despite government

is receiving massive loans. The successive governments in Pakistan had massively borrowed

from external as well internal sources to meet the twin deficits including budget and current

account.
 2.1.5 POOR ECONOMIC GOVERNANCE

Governance is the manner in which public officials and institutions acquire and exercise the

authority to shape public policy and provide public goods and services. Political system‟s

stability is key to economic stability. Pakistan faced economic challenges because of instability

of political system. Administration relied on short term policies instead of focusing on long term

goals and vision.

It is evident from the fact that the 2013 bailout was the first time Pakistan successfully completed

an IMF program. Other menaces like corruption, nepotism, red-tapism, kickbacks, corporate

oligarchy, and gentrification are also contributing to poor economic governance.

2.1.6 OVER DEPENDENCE ON FOREIGN AID

Pakistan has been heavily and consistently dependent on foreign aids because of poor

governance, corruption, lack of accountability weak financial structure, and faulty public

policies.

An aid dependent country realizes that donors mean to design policy, thus, government becomes
inactive and policy making capability of aid recipient becomes weak.

History of foreign aid shows that the emphasis on self-help becomes weak and problem of moral

hazard arises.

Aid flows can have consequence in a decline in governmental accountability. It is because

governing leaders are no longer interested to ensure the support of their public and the

acceptance of their parliaments when they do not require raising revenues from the homegrown

economy.

Unfortunately, the huge inflows of foreign aid to Pakistan could not be utilized for the

development purposes. Rather, aid has served the vested interest of a small influential group of

the society and the political elite in the government circle and has delayed the day of reckoning.

2.1.7 ECONOMIC STRUCTURAL WEAKNESSES

Pakistan needs acute structural reforms in taxation, revenue, customs, administrative, and public

spending frameworks. Many latest technologies like digitalization of important departments like

customs, taxation, and revenue have been implemented in world. Technologies like “Artificial

Intelligence” and block chain revolutionized trading and manufacturing sectors in world while

Pakistan is lacking in this perspective yet. There is need of transparency and accountability in

above mentioned departments so that economic yield could be achieved.

2.2 SECONDARY REASONS OF PAKISTAN’S ECONOMIC CRISIS

These are secondary reasons which actually stem out of primary causes which contribute to

economic woes of Pakistan. These impediments are mentioned below:

2.2.1 VOLATILE EXCHANGE RATE

Usually weaker currencies help in boosting exports and minimize the imports thus lessen the

gap of trade deficit. But volatile exchange rate sometimes makes impediments in economy

because markets attached to foreign goods get badly affected and eventually reduces purchasing

power of customer. It results in less cash flow in the market because investor does not usually

invest in such volatile market because it can make loss in spite of making profit to investor.

Pakistan‟s economy is mostly dependent on dollar exchange so volatility in currency has great

effect upon Pakistan‟s economy. To shift dependence from dollar, Pakistan needs to do imports

in respective currencies; for example in case of China, Pakistan should make imports in Yuan

rather than in dollars likewise in case of exports, Pakistan should do exports in dollars.

2.2.2 LOSS IN ENERGY SECTOR

Pakistan has power generation capacity up to 34,282 MW in 2019 but major contributor in

electricity generation is imported furnace oil which contributes approximately 70 percent of

energy mix. Such heavy dependence on furnace oil builds pressure on foreign reserves that is

why Pakistan is planning to shift from oil based production to RLNG, Hydro, Solar, and Nuclear

based power production facilities. Also line losses, in-efficient transmission and dispatch

framework hit badly economy‟s sector especially manufacturing and services.

Because of expensive energy, production sector is unable to compete the global market and

government has to grant subsidies to sectors like textiles, sugar, and wheat which badly impacts

the economy of Pakistan.

2.2.3 LOSS MAKING PUBLIC SECTOR ENTERPRISES

The state owned or public sector enterprises are the „white elephants‟ of the national economy

and are causing loss of billions of Rupees to national exchequer. These are serious drain on
government resources. According to an estimate, Pakistan is losing around 2% of GDP every

year due to huge losses by these PSEs. The bailout packages offered by the government to loss

making PSEs is nothing but subsidizing their poor management and corruption. The consumers

have to pay for the high price of inefficiency of these PSEs. According to Ministry of Finance,

the following eight PSEs are causing huge losses of Rs 400 billion to national exchequer and

draining fiscal resources. This amounts to around 15% of government‟s total annual revenues.

2.2.4 POOR TAX STRUCTURE

Pakistan's tax system is characterized by a number of structural problems. There is over

dependence on indirect taxes, which until recently accounted for a share in revenues of over 80

percent. In indirect taxes there is domination of taxes on international trade, which has promoted

inefficiency, distorted the allocation of resources and encouraged illicit trade. The effective tax

bases of most taxes are narrow due to wide ranging exemptions and concessions and rampant tax

evasion. Tax administration is characterized by primitive and out-moded procedures, complex

laws and considerable arbitrariness and discretion. The common perception is one of high levels

of corruption and inefficiency.

2.2.5 LESS PUBLIC SPENDING

Public Sector investment performs a key role in mobilization of resources in the economy. It is

not only the investment of public resources for economic gains but also provides impetus for the

private sector investment which is considered as the engine of growth.

Public Sector Development Programme (PSDP) is an integral part of public investment. Federal

PSDP has been rationalized from Rs. 800 billion to Rs. 675 billion including foreign project

assistance of Rs. 144 billion in budget 2018-2019.

In the revised PSDP, total number of projects has been reduced from 1212 to 822.

Ministry of Finance conveyed Indicative Budget Ceiling (IBC) for PSDP2019-20 at Rs. 675

billion to the Ministry of Planning, Development & Reform.

The respective portfolios have been rationalized and the size of PSDP-2019-20 is kept at Rs.675

billion including Rs.100 billion for programmes being managed by Finance Division (Rs.65

billion for IDPs and Security Enhancement, Rs.10 billion for Prime Minister‟s Youth Skill

Development Initiative, Rs. 22 billion for Merged Areas Ten Years Development Plan, Rs.2

billion for Clean-Green Pakistan Movement and Rs.1 billion for Gas Infrastructure Development

Cess).

Above measures show that less public spending will lead to less circulation of wealth which will

ultimately lead to unemployment, increased crime rate, and declined human development index

and less GDP growth.

2.2.6 INFLATION

Pakistan‟s annual inflation rate increased to 12.55 percent in September of 2019 from 11.63

percent in the previous month. Because of inflation, consumer price index increases which leads

to high prices of commodities, low purchasing power, and high level of poverty.

Right now, Pakistan has CPI growth measured at 11.4% in Sep 2019, compared with a rate of

10.5 % in the previous month.

As per the latest poverty estimates, 24% of Pakistan's population lives below the national poverty

line; which includes 31% in rural areas and 13% in urban areas1 .

Further, 38.8% of the national population is poor based on the multidimensional poverty index

(MPI) that is 54.6% in rural areas and 9.4% in urban areas.

 2.2.7 HIGH INTEREST RATE

Interest rate is commonly used as a policy tool to control money supply (MS) and accelerate

economic growth (EG). Increase in interest rate increases cost of borrowing, which exerts

negative pressure on investment. Hence, decrease in investment affects economic growth

negatively. Usually interest rate is increased to arrest inflation but on negative side it hampers

investment drastically by reducing ease of doing business and increasing cost of doing business

which ultimately leads to lowered GDP size of Pakistan.

2.2.8 POOR SME (SMALL & MEDIUM ENTERPRISES) SECTOR

In the industrial development of a country the importance of the SME sector cannot be

overemphasized. SMEs constitute nearly 90% of all the enterprises in Pakistan; employ 80% of

the non-agricultural labor force; and their share in the annual GDP is 40%, approximately.

However, unlike large enterprises in the formal sector, a small and medium enterprise is

constrained by financial and other resources. At present, there are more than 38 million small

and medium enterprises in Pakistan wherein 8 lakh are industrial units, 12 lakh service sector, 18
lakh commercial and retail shops. 41% of these industrial units are in urban areas and 59% are

set in rural areas.

SME sector is not being promoted because of certain issues like less interest rate, tax exemption,

and an established vendor industry. Because of these impediments, the growth of small and

medium sector is 8% in manufacturing sector, 10% in exports and 10% in service sector only

which needs to be enhanced.

2.2.9 LOW EXPORTS OF PAKISTAN

There are some genuine reasons for low exports in Pakistan. The country‟s economy produces

very simple products with very little value addition. Pakistan lacks technology and infrastructure

to produce highly complex and value added products. Reliance is placed on 6 sectors which are

known as export oriented sectors i-e textile, leather, surgical instruments, sports goods, carpets

and very little agricultural products predominantly rice.

Most of the goods which Pakistan export are very simple and require simple technology to

produce thus generating high competition and low earning margin in international market. All

the developed countries have strong export base and they produce highly value added products

which yield higher return and give them competitive edge. Behind the phenomenal success of

china lies technological revolution. Contribution of high technology products in Chinese export

is more than 24%.

2.2.10 LESS EASE OF DOING BUSINESS

Pakistan is ranked 136 among 190 economies in the ease of doing business, according to the

latest World Bank annual ratings. Ease of Doing Business in Pakistan averaged 118 from 2008

until 2018, reaching an all-time high of 148 in 2015 and a record low of 85 in 2009.
The World Bank ranks economies on their ease of doing business, from 1-190. A high ease of

doing business ranking means the regulatory environment is more conducive to the starting and

operation of a local firm. The rankings are determined by sorting the aggregate distance to

frontier scores on 10 topics, each consisting of several indicators, giving equal weight to each

topic.

For Pakistan, it is as follows: 1. starting a business (142), 2. dealing with construction permits

(141), 3. getting electricity (167), 4. registering property (170), 5. getting credit (105), 6.

protecting minority interest (20), 7. paying taxes (172), 8. trading across borders (171), 9.

enforcing contracts (156) and 10. resolving solvency (82).

We lack enough skilled workers. We don't even have certified plumbers, or trained electricians,

trained bell-boys, and even trained gardeners, what to talk of skilled handymen. We don't even

produce enough engineers and IT hard- and software experts.

3. SOLUTION TO COPE WITH ECONOMIC WOES OF PAKISTAN

3.1 REDUCE FISCAL DEFICIT

To reduce the fiscal deficit, the government should cut government spending, raise taxes and

revenues, increase GDP size by encouraging production, and in no way go for short term loans

from institutions like IMF.

In case of Pakistan, a challenging target of 5,555 billion rupees of revenue collection is faced by

government in this financial year, this target is 12.6% of the GDP and to achieve this target

government will have to make aggressive expenditure control to bring deficit to 0.6% of GDP.

To stabilize the economy, government has made an agreement with IMF for a $6 billion
programme. Once it approved, Pakistan will get additional $2-$3 billion assistance from World

Bank and Asian Development Bank.

3.2 REDUCE CURRENT ACCOUNT DEFICIT

Most common measures to arrest current account deficit are; devaluation of exchange rate, high

tariffs on imports, and enhanced competitiveness of exports and industry.

In case of Pakistan, government devalued currency against dollar up to more than fifty five

percent. It is usually done to support exports and resist imports because through devalued

currency price of imports increases which ultimately demand less quantity even if demand does

not lessens then government increases interest rate so that people could spend less on imported

items and could support domestic products.

In second measure high taxes are imposed on imports so that exports and domestic products
could be encouraged. In this regard, government of Pakistan imposed import duties to cut trade

deficit by $4 Billion in ten months.

3.2.1 INCREASED TAX-TO-GDP RATIO

Government of Pakistan has set target of revenues of Rs. 5,555 which is 12.6% of GDP. The

World Bank has recently estimated that in order to cover basic expenditures, Pakistan needs to

increase its tax-to-GDP ratio to at least 15%. But Pakistan has a complex taxation system with

a focus on indirect taxes with over 70 different taxes. A larger portion of economy believed to

100% of GDP is undocumented or termed as black economy.

To remove impediments in way of good taxation system, Pakistan needs to broad base of taxes

including heads other than income, sales, excise duty, and indirect taxes on nation. Taxation

system should have transparency and system should be technology driven instead of outdated

taxation mechanisms. There should be flexible and close coordination and data sharing between

FBR and provincial tax collection authorities. Taxation system should be customer friendly

instead of outdated tactics of tax payer harassment and ill-repute of revenue collecting

authorities.

3.3 ERADICATION OF CIRCULAR DEBT MENACE

Pakistan has been facing menace of circular debt via IPP (Independent Power Plants) because of

electricity theft, non-payment of dues, transmission losses, and technical losses.

To cope with this menace Pakistan needs to make leadership of power transformational as

compared to transformational.

A well-defined policy is needed to arise culture of payment of electricity dues and not to make

electricity theft among masses of Pakistan.

There is drastic need to make distribution system transparent and transmission system updated so

that menace of circular debt and load shedding could not re-emerge.

3.4 IMPROVED ECONOMIC GOVERNANCE

Improved governance includes transparency, accountability, sound and long term policies, timely

decision making, meritocracy, job security, and professionalism. Pakistan has been facing

economic woes just because of lack in above mentioned factors.

Transparency could be ensured in economic structure through digitizing of economy and using

centralized supervision and coordination of economic activities of country.

Accountability drive should be unbiased and should be based on rule of law for all.

There is gap of policy making and policy implementation in country. Rather short-term policies

are formulated and even old policies are replicated in economic structure. Sound public policies

are key to god governance in state.

As political stability leads to economic stability: government should work on long term policies

for benefit of country. For example, projects of public interest of previous governments should

be continued by upcoming governments because delay in such projects leads to economic

pressure on public exchequer.

Appointments should be on merit and transparently for this all appointments should be done

through respective public service commissions. Nepotism should be discouraged and punished.

Policy of right man for the righ job and at right time should be adopted and implemented.

3.5 LEAST OR NO DEPENDENCE ON FOREIGN AID

Corruption, mismanagement, misuse has made aid for country a curse rather than a blessing.

Pakistan cannot prosper unless and until it becomes self-sufficient in its development.
Pakistan needs to change its economic model from aid based to development based.

As future of Pakistan lies in trade not in aid, government should make development friendly

policies ensuring macro to micro level development. To get rid of aid dilemma Pakistan needs to

boost small and medium enterprises sector.

3.6 BOOST SME SECTOR

Middle class of any country is pre-requisite for prosperity of nation. SME sector of India and

china has made advancements and ultimately market competitive and technology driven products

are exported by these states to all over the world.

Marketing, servicing and trading fields of SME in Pakistan need advance technologies to

manufacture, supply chain management of products, logistic management during delivery, high

ease of doing business, low and transparent taxation, low cost of doing business, capacity

building of enterprises, and innovation in all sectors of SME.

Many incubation centers are open in Pakistan to boost SME sector like Lahore Incubation Center

and Plan X by Punjab Information Technology Board. Also, e-rozgaar scheme is launched for

freelancers but state should also sponsor and train those entrepreneurs who are mostly not much

literate to get into these centers. There should be training workshops for traders and

manufacturers related to this sector because they are not able to get trained on their own.

3.7 TURN LOSS MAKING PUBLIC ENTITIES INTO PROFIT MAKING

Public sector enterprises need to reformed, restructured, and privatized. More than one trillion

annually is beard by national exchequer to make these enterprises keep running. But it is not

possible in longer run as Pakistan is facing economic woes.

To make these entities profit making, government of Pakistan will have to make hard measures
in the form of privatization, restructuring and reforming.

For example in case of distribution companies of electricity; DISCOs, privatization is an

affordable option so that circular debt could be eradicated.

PIA is difficult to turnaround because of over-staffing, poor service and bad performance.

Government of Pakistan should write off its loans and should find a strategic buyer with track

record of best performance.

However case of Pakistan Steel Mills has so much mismanagement and over ridden with large

liabilities, negative capital and poor performance ratio. So, privatization deals should be

transparent and in competitive environment so that partisanship could be avoided.

3.8 MORE PUBLIC SPENDING

More public spending boosts economic activity in country. Because it circulates wealth in

economic pool by involving private sector as well. It creates jobs, makes infrastructural &

technological development in country and eventually rises middle class.

In case of Pakistan, public sector development fund should have much cash flow and liquidity to

finance projects rather than diverting these funds to defense spending. For example, simply 200

billion rupees‟ circulation in SME sector can boost economy at much significant level. Pakistan

spends almost 70% of her revenue in defense. Pakistan needs to spend at least 5% of GDP on

education instead of spending 2% of GDP. Because it makes long-run impact on employment.

3.9 STABILISED EXCHANGE RATE

To avoid speculation in currency market, to avoid trade deficit & current account deficit Pakistan

needs to trade in local currencies rather than in dollar terms. Like mostly imports we get are from

china so if we trade in rupee-yuan terms instead of rupee-dollar terms then we can flush out
burden on dollar and debt servicing.

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