Another year has passed, and a new year has just started with lots of hope and promises. Year 2024 was an eventful year for Pakistan in many respects, Pakistan was finally able to get an IMF deal, some stability on the economic and foreign exchange reserves front, and a record-breaking rise in the stock exchange.
With political stability and a controlled security situation, Pakistan can make steady progress on the economic front. The biggest challenge in the economy is the consistency of policies and allowing the business community to work without fear. Therefore, Pakistan’s economic prospects are closely tied to consistent implementation of policy reforms to stabilize the economy and rebuild the fiscal and external barriers.
It is expected that if everything goes like the fourth quarter of 2024, despite having political instability, the current government will continue; the economy will grow but will have slow growth rate; inflation will decrease as compared to last year; electricity and gas prices will remain more or less unchanged; bank markup rates will come to a single digit; drastic tax reforms will be made; and stock market, exports, and remittances will increase in year 2025.
There are few sectors which have the potential to perform well, if the government makes the sector’s specific policies and allows certain concessions. Textile is not a sector of choice here, its IT sector which is showing some positive signs. As we have seen, there is a boom of software development in Pakistan these days and this specific sector offers a significant opportunity for Pakistan to position itself as one of the trusted global players in the tech industry. Pakistan has one of the sharpest brains, and it can earn a good amount of foreign exchange if these young professionals are given an opportunity to demonstrate their abilities. With the right policies, Pakistan has the potential to enhance its export competitiveness in the IT sector.
IT sector has the potential to boost foreign reserves and can bring a good name to the country. There is no doubt that IT exports can be instrumental in maintaining economic stability and facilitating international trade. Sadly, Pakistan has been facing severe internet issues for the last few months. The government recognizes the pivotal role of the software industry but, at the same time, it just doesn’t care about the issues being faced by the IT sector, especially the speed of the internet and blocking websites etc.. Not sure who advised the policymakers to ban Twitter in Pakistan, thus forcing the entire country to start using VPNs. Previously, only IT related professionals used VPNs but now it is even being used by housewives (which indicates how people are now aware of the things around) to access twitter. Twitter is like a bazar where we see all sorts of comments and opinions, and it cannot be checked or controlled, therefore, there is no point in wasting time on controlling social media. Undoubtedly, things are being handled without having a thinking process and without realizing the consequences and implications.
The best approach to address fake news and anti-state propaganda is to go with full disclosures, make transparent policies and implement rule of law. Building the confidence of people on the institutions is the only way forward. If an institution gives a statement on any matter, it should be considered as authentic and reliable rather than being viewed as a cover-up. Not everything is meant to be kept closed doors or confidential or made it a state secret. Share facts with people openly, people will start understanding the realities and within a few years, they will also start trusting the institutions, then you would not be required to install firewalls or reduce the speed of the internet artificially. Let the people decide what is good for them, state cannot and will not be able to groom or educate people about what to see and what to think in 2025.
Therefore, it is important for the government to give incentives to young professionals to start their own business in the IT sector in particular in the year 2025. There is no doubt that the IT sector will be the prime sector in the coming years and good IT professionals will become the backbone of any country. IT stuff will not be limited to one particular area, but even the security of a country will highly be dependent on IT going forward. The federal government has implemented certain tax incentives to incentivize investment in the IT sector, which require continuity in 2025. These fiscal benefits aim to attract both local and foreign investors, spurring capital inflow into Pakistan’s burgeoning software landscape. As a result, software houses across the country have substantial expansion opportunities, enabling them to cater to an increased clientele.
The federal government is working on increasing the taxpayers and has eliminated the non-filer category, which is a good step in the right direction. In 2025, the government should also include those sectors which are not properly or inadequately taxed. Collecting more tax by increasing the tax rates of existing taxpayers is creating disturbance among the law-abiding citizens. Those who are not paying tax should be taxed in 2025. Income from Youtube, and Ticktok should be taxed not only in Pakistan but also globally. That easily earned money is causing a lot of social problems in society. It has become an easy way of making money without any check and balance. The content of most of these Youtube and Ticktok videos can easily be categorized as below par and sub-standard. Getting likes or views is not a yardstick of gauging the quality of the content. Therefore, the government should form some policies for Youtube and Ticktok and can generate revenue as well by taxing these social media forums.
The government should also revisit it polices towards small and medium enterprises in 2025. Encouraging SMEs can help Pakistan come out of its current and persistent economic problems. Banks prefer to lend to risk-free businesses and projects, due to which SMEs are not having enough limits. SBP should make it mandatory for banks to lend a specific amount of available resources to SMEs in a particular period. The government should strengthen SMEDA and other similar institutions to support SMEs in 2025 without which Pakistan cannot progress.
The high cost of electricity is another area which hurdles economic progress. The high cost of electricity has two dimensions, one is the cost of generation, and the other is the cost of distribution. The government has literally screwed the IPPs and is renegotiating the already executed sovereign backed power purchase agreements with the owners. It is basically not a good idea to have such negotiations under such conditions and it is some sort of nationalization of the power sector. It will have a long-lasting impact on the confidence of the business community in the state. But it seems that policymakers are taking a very short-term view. The real cause of the high cost of electricity is undisciplined electricity distribution companies. There is an unimaginable amount of money pilferage in the electricity distribution sector. The cost of electricity will not come down without bringing discipline in the electricity distribution sector. Moreover, there is a vicious circle in the power and FBR. Government increases the tax targets of FBR, FBR imposes more and more taxes on the power and energy sector and consequently, power and gas distribution companies increase the prices. The government needs funds to finance the loss-making state-owned enterprises and inject tax money into the electricity and gas distribution companies. It has become a zero-sum game. Eliminating taxes on the electricity and gas bills will also reduce the tax targets proportionately, but there is a likelihood that getting cheap electricity and gas will help business to generate economic activities, will create new job opportunities, thus may end up in making a good amount of profit and able to pay more taxes. Moreover, the government should just shut down the loss-making enterprises where keep employing a few hundred people in those loss making enterprises is actually causing financial stress to millions of people and is a continuous financial burden on the government.
Pakistan will continue relying on external debt in 2025 and will also continue struggling to get more debt from the multilaterals. Effective utilization of debt can make a difference. If debt is taken for sick units and for non-development areas, then it would be a huge burden on the economy. The government should seriously work on the privatization of state-owned enterprises in 2025. Government has planned to privatize at least three electricity distribution companies in 2025. It would have serious complications if these electricity distribution companies are privatized in their current form and shape without breaking them in a number of more electricity distribution companies. This will create monopoly of one company over a large electricity distribution area where Regulator will not be able to monitor one private company.
It is imperative that Pakistan will continue to consolidate public finances, expand social spending, reduce fiscal risks from the state-owned enterprises, and improve the business environment to encourage growth led by the private sector in 2025.