Fiscal Challenges of Pakistan and way forward

We will highlight the fiscal challenges of Pakistan and simultaneously see what Pakistan can do
to overcome those.
In my opinion, the Pakistan economy is facing mountainous issues which includes:

IMF Dependency:

In the fiscal year 2022–23, Pakistan’s total debt servicing payment is estimated to be 3.95 trillion
Pakistani rupees ($17.9 billion). Public debt (as of March 2022) was 4.44 trillion rupees (72.5%
of GDP). It is well-known fact that we are the most favorite “customers” for IMF programs.
Enough that Indians too insult us by associating us being the slaves of theirs. And where’s the
lie? We do take financial aid from them and accept their conditions and by accepting those they
make it sure that we stay their favorite customers. Bitter truth. Now, how can we save ourselves.
The key to debt retirement is export-driven growth with government reducing the unproductive
and wasteful expenditure and utilizing the right policies and allocating the resources in right
sectors (The IT sector is highly ignored and heavy taxation of telecom sector is proving to be
anti-growth.). Another suggestion, utilizing the state land commercial purposes by giving them
on lease through public auction, and collection of taxes fairly and justly, but firmly, without any
favour or fear.

Managing high fiscal deficit coupled with massive debt burden is the toughest challenge that
Pakistan has to overcome.

Weak tax governance:

“In emerging market countries, tax-to-GDP ratio is around 16%, but in Pakistan it is 8.6% at the
moment.”
This shows that Pakistan’s tax governance is weak. A state needs to have an iron will to collect
the expected revenue through not only good governance but very effective tax culture. A serious
initiative about the documentation of big businesses should be done to tax them accordingly to
their income.
Even with the help of world bank and other institutions, Pakistan failed to restructure the tax
system. Instead of stopping tax evasion and increasing the number of taxpayers, the government
has increased taxes on those who already pay them. This has further burdened businesses and
slowed down economic activity.
The increase in domestic debt is also because of weak FBR revenue collection, this leads to
another problem faced by Pakistan which is the following.

Pakistan’s expenditure is more than its revenue:

As revenue receipts are not enough to cover development projects therefore, the review of public
expenditures management is important for our government to have some control in the
expenditure. Many people say “Army budget kha gai” and other similar reasons of our problems.
But in fact, the defense expenditure is only 20% of government expenditure. It is only 4% of
GDP, and is not such a large expenditure as compared to debt servicing which is 7-8% of GDP
and almost 40% of government expenditure. And some other mandatory non development
expenditures like interest payments, defense and law and order which cannot be avoided in any
circumstances so government has to contain its fiscal deficit by raising revenues somehow.

Spiraling Inflation:
To counter or reduce the fiscal deficits, the government of Pakistan may knock on the door of
state bank of Pakistan. This leads to inflation which is harmful to middle class, fixed wage and
fix salary employees and obviously the poor. To combat inflation, the government could use
contractionary fiscal policy that it already does but in more efficient and effective ‘way’. The
‘way’ where it does bring a change in the economy of Pakistan.

Increasing fuel prices:

In my opinion, this is one of the most important challenges of Pakistan because this is what
effects every social class of Pakistan. The change in price of oil is likely to affect every citizen of
Pakistan because rich people use cars utilizing oil to travel while people use oil in their Auto
Rickshaws to earn. Hence, everyone is affected. Now, how to minimize this? The solution is that
the budget allocated to the energy sector should be revised; Power sector should be given a
priority. Already, it is said that small dams are expected to provide additional generation within
next three years and IPPs and GENCOs are also being encouraged to convert from oil to coal
based power generation. But all these are planned and never put into action. It is High time for
Pakistan to improve its energy mix and reduce the dependency on oil for power, so they import
less too by ensuring reasonable tariffs for consumers, ultimately leading for financial
sustainability.
Deficit Balance of payment:
Our share in the world trade is also decreasing. India in the same period had doubled its share
from 0.7% to 6 1.4%, while Pakistan is going the other way; increasing the imports/exports
imbalances. We should take advantage of the free trade. By entering the markets of dynamic
products and taking it slow on low revenue generation products can be a way out. We should
expand our exports base/markets and go more global. For that, we need to we improve the
quality of our products, go out and do the marketing abroad, invest in research and development.
We should also chalk out a national plan second Green Revolution in Pakistan by increasing
productivity and quality, reducing costs and establishing agro-based industries capable of
meeting local demands and producing value-added exportable surplus so the necessities do not
be brought from foreign countries and we can also generate revenue for exporting the excess.

Way forward:
After analyzing the Pakistan’s political history, I can say that most of the decisions were made
without considering the economic consequences and also the governments do not have reliable
and competent economists in their teams. Just because you are hiring bankers and chartered
accountants to run the ministry of finance, it surely does not assure the country to be on
sustainable development track. In short, the continuing economic problems have been caused by
inconsistent economic policies, pursuit of the wrong priorities, and bad governance.
Sometimes, the world favors us for example due to recent flooding in Pakistan many countries
have not only provided financial aids but these whom we were in debt with has forgiven us and
IMF has also extended the due date when we would eventually have to pay them back. But this is
not a proper solution which would always help us in times of need, this was nothing more a
miracle. Therefore, Pakistan needs to do proper data analysis in order to form an effective and
sustainable policies and reforms. Policy makers must find out the causes and prepare a
comprehensive development plan to implement sustainable growth without political interference.
On the administrative front, with implementation strong enforcement is also necessary.
At the same time, stability is also important. Political stability should exist so no bad governance
is formed which ultimately takes over the civil institutions leading to most of the financial crises.
References:

Dr Ikramul Haq & Huzaima Bukhari. (n.d.). Challenges on the Fiscal Front: Political Economy.
thenews. Retrieved January 3, 2023, from https://www.thenews.com.pk/tns/detail/761147-
challenges-on-the-fiscal-front

Sahqani, G. B. (2022, October 26). Pakistan grapples with economic challenges in 2022–23
budget. Bloomberg Tax. Retrieved January 3, 2023, from
https://news.bloombergtax.com/daily-tax-report-international/pakistan-grapples-with-
economic-challenges-in-2022-23-budget