Why Imran Khan needs to pay immediate attention to Pak economy

On June 31, Pakistan Prime Minister Imran Khan rolled back gas tariff hike for roadside tandoors to bring down the prices of roti and naan in Pakistan. A prime minister who is taking steps to reduce price of essential commodities like bread, is surely handling a troubled economy. And now, as per the ‘Trade and Development Report 2019’ released by the UN on September 27, Pakistan is in the middle of an economic crisis.

A loan bailout from the IMF or support from Saudi Arabia and China has not helped the situation. But the scenario is not all new for Pakistan. The country's economy has been struggling for decades now.

With increased prices of gas, oil products and electricity burning a hole in the common man's pocket, it is high time Imran Khan, who was voted on an anti-corruption promise, pulled some desperate measures.

The Pakistani rupee has lost a fifth of its value against the dollar since the beginning of this fiscal year and growth rate of its economy fell to to 3.3 per cent from 6.2 per cent. The country accepted a bailout fund of $6 billion in May. The money will be disbursed over a period of 39 months and in order to repay the loan, Pakistan is expected to increase tariffs and efforts to significantly increase revenue mobilisation by four to five per cent of GDP in the next three years.

“Recently, an IMF team was in Pakistan to informally review the progress under the $6 billion Extended Fund Facility. The IMF delegation acknowledged the government's economic programme and termed it a "promising start". It stated that although the economic reform programme was still in its early stages, the team did appreciate the progress in key areas. It would wholly depend on the government's resolve that the country would have to bear the difficulties that would occur during this transition and that there would be no backing down. For Pakistan, this is a now or never situation to undergo the hardships in order to return on the highway of economic progress,” says Majyd Aziz, President, Employers President of Pakistan and South Asian Forum of Employers.

“The tragedy has been that the country has not been able to withstand the harsh realities and complete the IMF programmes. The nation's economy must fully conform to international standards, regulations, and practices. This is imperative. This inculcates economic sanity and highlights the good, bad and ugly of the economy. A holistic approach is essential rather than piecemeal restructuring. Most important is national ownership of the decisions to revive the economy,” Aziz adds.

Chairman of Pakistan International Chamber of Commerce Tariq Rangoonwala says, “the government is restructuring some of the policies for the benefit of the economy.” And so it did, securing fruitful bilateral relations like deferred oil payment facilities from countries like the UAE and Saudi Arabia. This benefited the country to a great extent. “The country is also trying to raise capital by encouraging foreign direct capital in order to increase exports,” Rangoonwala says. He also adds that the “red-tape needs to be cut out extensively.”

Increase in price of other essential commodities is affecting the common man. According to the IMF, Pakistan's economic growth will slow to 2.9 per cent this fiscal year from 5.2 per cent in 2018. In February, the State Bank of Pakistan, the country's central bank had only $8 billion left in its foreign reserves.

Corruption seems to be another factor that has been affecting economic growth in the country. In 1995, when the country was under the leadership of Benazir Bhutto, Pakistan was considered among the most corrupt countries in the world. The country remained entrenched in corruption through the leadership of Nawaz Sharif to Chaudhry Shujata Hussain and Yousaf Raza Gillani.

In fact, former premier Nawaz Sharif is currently facing corruption charges, including his family members acquiring luxury flats through fraudulent means, in addition to money laundering charges. An investigation ordered by PM Imran Khan on the Panama papers leak revealed links between Sharif and eight offshore companies.

The dire state of the economy has been affecting people of the country in adverse manners. More than 20 million children are being deprived of an education as their parents cannot afford it and less than 30 per cent women in the country are employed. Twenty per cent of its annual budget is allocated to military, making it one of the country's biggest financial burdens. This is coupled with low sources of revenues and high non-development expenditure. Besides this, government officials and a lot of the country's elite evade taxes, which PM Khan has promised to crackdown on.

“A nation that is unable to enhance exports because the export culture is rare among politicians and government officials, control non-developmental expenses, unable to increase the tax base, continue with tough and undesirable bureaucratic discretionary powers, and unbridled corruption has deterred large-scale domestic and foreign investment. The fallout has been on the industrialisation of the country. Pakistan private sector is enlightened, entrepreneurial, and visionary, but over the years, the rot has set in where there is a huge disconnect between private sector and government. This malaise should be removed before extensive economic activity can again take prominence,” Aziz says.

“Of course there is hope. Things are looking up, even if it is slightly. The auto sector is suffering a bit, but the sensex has been consistent. Tourism industry is slowly seeing an upswing,” says Rangoonwala. It is also encouraging to see that the international cricket has resumed in the country. But for its economy to be revived, there is still a long way to go.

And even while the military may have been allocated Rs 1,150 billion budget for the fiscal year of 2019-20, the army has forgone an annual increase in the budget allocated to them. But Khan still needs to increase revenue inflow. The country set to go on an austerity drive will reduce civilian expenditure by 5 per cent and Khan has announced that he plans to disburse Rs 3,255 to provinces from federal resources. The government is also cutting its own expenditure by not creating any new job posts, banning purchase of vehicles and limiting subscription to one newspaper.

Many factors including “mismanagement, populist measures, corruption, lack of fast-track decisions, undocumented economy, no tax on agriculture, over reliance on domestic or foreign loans,” according to Aziz, have contributed to the situation Pakistan's economy currently is in. Taking hold of the situation is definitely doable if all the factors are paid attention to.