Changing in economic dynamic of Pakistan

Federal government claims that it has given a growth budget this time and is also consolidating its reforms introduced in the last two years. Pakistan has seen a contraction in the economy due to Covid-19, which has badly affected the economy. However, federal government has made such polices through which it has partially recovered the economy effectively. It is being said that economic growth of the last government was primarily based on loans and through managing rupee artificially whereas current government has made the growth on the solid grounds.

Prices of almost everything have increased in the last few months. Government has a realization on inflation especially related to food inflation. Purchasing power of ordinary people has greatly diluted and are facing difficulty in fulfilling their basic needs. Today, Pakistan is importing basic food items e.g. wheat, sugar, and other food items, which is absolutely not an encouraging thing for a country who claims to have an agri economy.

Government has temporarily deferred International Monetary Fund (IMF) programme, whereas government thinks that it would not be able to implement certain measures if it remains under the IMF program. IMF is continuously asking the government to increase the tariff of electricity, which government is not willing to increase. Likewise, IMF is also asking government to increase the tax rates and reduce the tax exemptions, which government is also not willing to accept. Government thinks that electricity prices are already on the higher side and further increase will put pressure on the business and will further fuel the inflation. Likewise, tax rates are also on the higher side, any further increase in the tax rates will be counterproductive. Therefore, Government is planning to increase the number of tax payers by focusing on many non-filers in the system. Since decades, traders are not paying any tax as such, despite the efforts of various past governments. Pakistan’s annual retail sale is around Rs. 18 trillion out of which only Rs. 3.5 trillion comes under the tax radar. The most unfortunate thing is that ordinary people are paying indirect taxes and are already contributing to this Rs 18 trillion retail sales but retailers are not depositing the collected sales tax to the Federal Board of Revenue (FBR). Because of this huge gap, government wants to bring this segment within the tax network and this will increase the overall tax collection. Likewise, government is also planning to install a track and trace system on manufacturing concerns in phases so as to control the leakages within the tax system. Last government also tried to implement the track and trace system but couldn’t succeed.

Government believes that it has put a realistic tax collection target for the next fiscal year. FBR has collected over Rs. 4.7 trillion in fiscal year 2020-21, which government thinks that it can easily achieve Rs. 5.2 trillion in the next fiscal year. In order to achieve the next year’s tax target; government is heavily relying on sales tax and other indirect taxes, which will further fuel the inflation. On one side, government agrees that it will be relying on indirect taxed but on the other, they are also banking on tax on retailers. Tax on retailers is a big issue in Pakistan. No previous government has ever succeed in levying tax on retailers because it has a political aspect as well. Things will further clear in the coming months but there are chances that new taxes will have to be imposed on goods and services otherwise, target of tax collection will not be able to achieve.

Ehsaas Programme is considered as one of the best initiatives of this government whereas government has increased its reach and is also adding more segments in its flagship programme. It is also under discussion that electricity subsidy is to be paid through Ehsaas Programme. Overall, this programme is for the people living under the poverty line and giving monthly stipend on a long-term basis is not a very good idea, if we think realistically. Instead of paying a monthly stipend, government should form policies and should initiate such programmes where below the poverty line segment should be given money to start their own businesses. Microfinance institutions should be engaged on a non-political basis and people should be encouraged to earn rather than living on government grants. The economic performance parameter should be to see how many people are availing Ehsaas Programme as compared to last month last year. Gradually there should be a reduction in the number of people availing Ehsaas Programme, but in case, there is an increase in the number of people availing such grants then it will clearly show that people living under the poverty line has increased and government’s economic performance is not fully satisfactory. Ehsaas Programme is no comparison to the US jobless allowance therefore, it should be viewed and analyzed as a grant programme for the people under the poverty line and any increase in the number of people applying for the grant is simply alarming.

Government should also focus on small and medium sized enterprises (SME), which is a back bone of the economy of any country. If SMEs are given the required supportthen these SMEs will automatically grow in a few years’ time, some of them will even become bigger and can then not be categorized as SMEs. China has actually did this systematically. There was a time, when there were jokes on Chinese goods and were categorized as second or third copy. Gradually their good performing companies started manufacturing world class equipment and goods and are now competing with the European equipment in terms of quality and standard. Any business can be profitable if it is run honestly and funds are not taken out of the business, obviously depending upon the country’s economic condition. Therefore, it is important to do business with integrity whereas government should form a special fund for supporting the SMEs.

Pakistan should also focus on agriculture and water sector. Somehow, these two sectors have always been neglected. But we have now reached to a point where any further negligence on these areas will cost Pakistan heavily, which will also be irreversible. Share of agriculture sector in total GDP is declining year after year. With the current increase in the population, it is important to recover the lost yield so that Pakistan can better manage its food security matters. It is important to empower the farmers by incentivizing them to offering them subsidized loans and also provide them cheap and good quality fertilizers. Government’s current claim of GDP of 3.9 percent is primarily based on good production of wheat, rice and cotton therefore, focus should be on improving the yield. Agriculture area of the country is also declining due to massive construction of the housing schemes. Government is trying to address the bottle necks by supporting warehouses and cold storages. Likewise, Pakistan is fast approaching to become a water scarce country and measures should be taken to recover the water loss.

Prime Minister has just visited Gwadar and inaugurated the second phase of CPEC. The visit was much needed and long awaited. Pakistan can get huge benefit from the CPEC where focus should be given on industrialization under CPEC. Road networks and power projects are already done under CPEC so now work should be done on the manufacturing side. If something is done on the agri and SME side under the CPEC, then that would change the entire dynamics of the economy of Pakistan.

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