Pathway to Economic Stability

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Sajad Jatoi

With the formation of the new government after the 2024 elections, the political uncertainty that has been linger­ing for the last 6 months has come to an end. Howev­er, the shadow of the economic crisis still looms large over Pak­istan, necessitating the country to approach the IMF for another bailout package after the expiry of the current one in March. So, this raises some pertinent questions: how long will Pakistan continue to seek assistance from multilateral lending agencies such as the IMF? And will the country be able to resolve its crisis once and for all?
The questions are quite tricky to answer. Undoubted­ly, there is a glimmer of optimism with the two major po­litical parties that have come to power. However, to say that Pakistan will be able to overcome its crisis would be simplis­tic and overly optimistic. This is because the past history of the country makes it quite skeptical that it will be able to put an end to its long-festering economic woes.
Historically, Pakistan has gone to the IMF more than 23 times. The first time the country entered the program was in 1958. Since then, it has hardly completed any single IMF program, failing to uphold its commitments after it gets the monetary fund to agree to a pack­age. To illustrate, Pakistan was living through one of its worst eco­nomic crises just weeks before the PDM government came to pow­er after overthrowing the PTI government. The PTI government, despite being aware of Pakistan’s economic challenges, decided to sell petrol and diesel at subsidized rates. This not only eroded the IMF’s confidence in Pakistan’s political leadership, but also led to severe economic problems for the incoming government. So the is­sue is that Pakistan has rarely been committed to implementing structural adjustment programs recommended by the IMF. There may be concerns about those IMF-prescribed recommendations, but one cannot solely blame the IMF for Pakistan’s continued eco­nomic problems. This is because the country has never fully imple­mented those programs in letter and spirit.
If past history is anything to go by, Pakistan will likely follow the same trajectory. It will eventually sign an agreement with the IMF and gain some breathing space. As a direct consequence of entering into the agreement, inflation will surge. Energy prices will increase, as will indirect regressive taxes.
What exactly should Pakistan do to come out of this crisis once and for all? The answer may be simple, but implementing it is chal­lenging. To resolve this crisis, the country will have to take both long-term and short-term measures. The short-term measures should include rebalancing the fiscal account by raising the tax-to-GDP ratio through expanding the tax base, taxing agriculture, and bringing retailers under the tax net. Rebalancing fiscal expendi­ture by privatizing State-Owned Enterprises (SOEs) that are hem­orrhaging billions of rupees annually (According to State Bank of Pakistan, SOEs incurred losses worth 1.4 trillion in the year 2023). Strengthening social safety programs such as the Benazir Income Support Program (BISP) and Sehat Card health insurance program.
The long-term measures should include measures such as re­solving the energy crisis by either transitioning to or investing in renewable energy resources, or through ensuring a steady sup­ply of energy through fossil fuels. Attracting foreign direct in­vestment by improving the ease of doing business index in the country by streamlining the entire procedure involved in open­ing a new business. This can be achieved by making the Special Investment Facilitation Council effective and ending red tape by providing one-window services. Increasing exports by changing the strategy from import substitution to export orientation and by focusing on high-value exports such as information technolo­gy and pharmaceuticals (e.g., Pakistan’s export focus is tilted to­wards textiles, as the country fetched 13 billion dollars through textile exports in 2023). Improving governance by combating corruption through enhanced transparency and effective ac­countability laws. Also countering the resurgence of terrorism through implementing the National Action Plan.
In conclusion, while a new government offers hope, Pakistan’s economic challenges persist. To break free from perpetual cri­ses, short-term fiscal measures and long-term reforms are es­sential. By prioritizing pragmatic solutions, Pakistan can move towards stability and prosperity. The road ahead may be daunt­ing, but with political will and decisive action, the country can overcome its economic challenges once and for all.
The writer is a freelance columnist based in Larkana. He can be reached at sjatoi831@gmail.com