In August, remittances amounted to $3 billion, which is a 40.5% increase compared to the same month last year. However, another report indicates that the IMF has expressed concern about the volume of circular debt in Pakistan’s power sector. The shared plan suggests that the circular debt in the power sector could increase by another 100 billion rupees this fiscal year.
Reliance on remittances from friendly countries, international financial institutions, or overseas Pakistanis plays a significant role in supporting Pakistan’s economy. Indeed, international financial institutions’ reports have deemed Pakistan’s economic situation satisfactory, with expectations of further improvement in the coming years. There has been an improvement in law and order in the country, and economic activities are also increasing.
Confidence among domestic and foreign investors has been restored. On the other hand, those who are considered economic experts often claim that the economy is in disarray and on the brink of collapse when they are no longer part of the government. This kind of behavior is unconstructive.
The economy needs structural changes. The challenge is how to reduce the financial difficulties faced by citizens. The middle and lower classes are severely affected by inflation and rising costs. For example, there has been an extraordinary increase in the prices of medicines, and electricity and gas prices are also very high. The unemployment rate among educated, skilled, and unskilled youth is at an all-time high. Even doctors and engineers are unemployed, and young people with MPhil and PhDs in scientific subjects like mathematics, chemistry, and physics are struggling to find jobs.
Reforms are needed in the energy sector to address electricity losses and eliminate non-targeted subsidies. Pakistan should focus on the development of export-oriented industries such as textiles, agriculture, and pharmaceuticals. This requires investment in technology, research, development, and marketing. By boosting domestic production and developing local industries, Pakistan can reduce imports, which can help in improving the balance of payments.
Large industrialists and manufacturers have installed tax-exempt solar energy systems and are thus bypassing the grid, while average and poor consumers cannot afford solar energy and are forced to buy expensive electricity.
The same issue applies to the privatization of sick industries. Tax collection is so poor that out of a target of 3 million traders, only 200 have voluntarily registered. When it was announced that non-filers’ SIM cards would be blocked, the response was that legal constraints would prevent such actions. Failure to collect taxes reflects a failure in governance. If a salary of 50,000 rupees is exhausted in just 10 days by many salaried employees, why can’t the state collect income tax from traders?
Pakistan’s geographical location places it amidst over half the world’s population. China and India are ahead of Pakistan in scientific and economic development. We have abundant resources and are the gateway to Central Asia and Russia. To establish our economy, we need to thoroughly review imports from these countries and produce what we can locally to meet international standards. There is no reason why high-quality, affordable goods cannot be purchased from us, given the benefits of cheap labor and reduced shipping costs.
Many industrial units in Pakistan have the capability to produce goods locally if provided with the necessary facilities and support. By adopting public-private partnerships and transparent privatization processes, we can move towards achieving industrial development goals. Our shipping industry and port system are very weak and need improvement. When economic development is underway, trade deficits are less of a problem. Many countries, including the United States, have experienced trade deficits for the past fifty years. If imports contribute to economic growth, they should be encouraged.
There is no harm in borrowing, provided that the loans are spent correctly and used for economic and industrial development. The salaried class plays a crucial role in boosting the economy and market, but successive direct and indirect taxes have made it increasingly difficult for them to meet their basic needs. Instead of imposing super taxes or extra taxes on industrialists, they should be encouraged to invest in CSR projects. Tax reforms are also urgently needed.
Currently, there are over 400 textile industries in Pakistan. The textile sector needs to remain competitive and further improve, as it plays a crucial role in Pakistan’s total exports. All major global textile brands are produced in Pakistan, but no industrial policy can succeed without continuous and affordable electricity and gas supply, modern industrial infrastructure, skilled and experienced workers, modern banking, and a friendly tax system. It would also be beneficial to revitalize institutions like the Pakistan Industrial Development Corporation, which were established in the past for industrial and economic development.
Ineffective tax reforms are behind the government’s inability to collect sufficient tax revenue. Many service sectors and businesses are still outside the tax net. Tax evasion occurs due to collusion between business people and tax authorities and system flaws. There is an urgent need for reforms in the tax department, including new hires and regulatory changes.
On the other hand, state-owned enterprises running at a loss are consuming a significant portion of the budget, affecting both the national treasury and economic development. Corruption and inefficiency are the primary reasons for this. These enterprises have made no effective efforts to improve their productivity and capacity.
Economic renewal is essential, with a focus on agriculture and industry, sectors capable of creating new and sustainable jobs. Additionally, modern technologies and fields like computers, software, and information technology offer better opportunities. The government needs to urgently address these areas to enable educated youth to secure respectable employment. However, political harmony and stability are crucial for such economic changes to be possible.
Without political coherence, such economic changes cannot be achieved. The current confrontational politics in Pakistan is a significant barrier to economic recovery. The government and opposition need to resolve political disputes and align their policies on economic issues, especially focusing on human welfare and job creation. Furthermore, the government should ensure that its coalition partners are fully prepared for economic restructuring.