How Can Pakistan Fix It's Economy? | Haroon Sharif | | Dawn News English

Summary

The World Bank and IMF have conducted reviews on Pakistan's economy, projecting a growth rate below potential at around 2% for the World Bank and 2.7% for the IMF. Key challenges highlighted include a narrow tax base, high inflation, and a significant fiscal deficit. Recommendations focus on expanding the tax net, managing debt, and addressing structural issues to boost investment and export competitiveness. The report emphasizes the need for fiscal discipline, policy consistency, and private sector involvement for sustainable economic growth.

Takeaways

• 🌐 International institutions like the World Bank and IMF conduct periodic reviews of Pakistan's economy.
• 📉 Pakistan's economic growth is projected to remain below potential, with estimates slightly below 2% to 2.7%.
• 🏦 The banking sector's profits and a better cotton crop are expected to drive economic growth.
• 💹 Macroeconomic stability is a concern due to a narrow tax base, with tax to GDP ratio around 10%.
• 📈 Inflationary pressures are high, with IMF suggesting a slight decrease to mid-20% in the next financial year.
• 💸 A large fiscal deficit is a key risk, with the budget deficit at 7.8%, exceeding IMF's recommended limit.
• 💵 Pakistan's debt profile is stressed, with almost 100% of budgetary resources spent on debt servicing.
• 👥 The young population requires investment in sectors like health, education, and skills development for sustainable growth.
• 🚧 Structural reforms are critical for Pakistan's economy, including fiscal policy, expenditure management, and power sector efficiency.
• 🌱 The need for a shift towards a competitive export base and value-added sectors for long-term economic growth.

Q & A

What is the frequency of the World Bank's economic review for Pakistan?

The World Bank conducts a six-monthly review called the Pakistan Economic Development update.

What is the projected economic growth rate for Pakistan according to the World Bank and IMF?

The World Bank projects Pakistan's growth to be slightly below 2%, while the IMF suggests it might touch 2.7% in the year 2023-24.

What factors are expected to drive Pakistan's economic growth as per the reports?

The banking sector's profits and a better cotton crop are expected to drive Pakistan's economic growth.

What is the main challenge to macroeconomic stability in Pakistan as highlighted by the reports?

The main challenge is a narrow tax base, with sectors like retail, property, and agriculture not being effectively taxed, resulting in a tax-to-GDP ratio of around 10%.

What does the IMF suggest regarding Pakistan's inflationary pressures?

The IMF suggests that inflationary pressures might slightly decrease to the mid-20% range in the next financial year.

What is the current budget deficit percentage of Pakistan, and how does it compare to the IMF's recommendation?

Pakistan's current budget deficit is around 7.8%, which is 4% higher than the IMF's recommended range of 4-5%.

How does the high fiscal deficit impact Pakistan's ability to finance its debt?

The high fiscal deficit means there is a significant financing requirement to cover it, which can lead to increased borrowing and debt servicing costs, crowding out private sector credit and potentially leading to inflation.

What percentage of Pakistan's budgetary resources is spent on debt servicing, and what does this indicate?

Pakistan is spending almost 100% of its budgetary resources on debt servicing, indicating a debt-stressed country status.

What are the key structural reforms suggested by the IMF and World Bank for Pakistan's economy?

The key structural reforms suggested include expanding the tax net, reducing the size of government and saving expenditures, and moving towards a competitive export base.

How does the current economic situation affect Pakistan's ability to invest in sectors like health, education, and skills development?

The current economic situation, with high fiscal deficits and debt servicing costs, leaves little room for investment in crucial sectors like health, education, and skills development.

What are the mega constraints that Pakistan needs to address to improve its economic situation?

The mega constraints include political instability, lack of capability in bureaucracy for policy formulation, deteriorating law and order, and the need for structural policy shifts towards deregulation and private sector-led growth.