Undoubtedly, the policies of Prime Minister Shehbaz Sharif have started showing signs of improvement in the country.
Prime Minister Shehbaz Sharif has stated that to restore Pakistan’s economy, tough decisions had to be made. He emphasized that prioritizing the state over politics helped prevent the country from going bankrupt. He expressed these views during a meeting with members of the National and Provincial Assemblies from Khyber Pakhtunkhwa in Islamabad.
There is no doubt that the current government has been successful in saving the country from default and getting the national economy back on track. Prime Minister Shehbaz Sharif continues to share his thoughts on this matter. To address the root causes of economic issues and reduce inflation, budget deficits, and national debt, the government needs to implement responsible financial policies. Additionally, improving tax collection and managing expenses is essential to increasing revenue. To accelerate development, introducing new technologies with the cooperation of friendly nations like China, Saudi Arabia, Gulf and Central Asian states, Turkey, Iran, and the United States is necessary.
In this regard, the role of the Special Investment Facilitation Council (SIFC), significantly influenced by Army Chief General Syed Asim Munir and under the Prime Minister’s Apex Committee, has been notable and positive. The SIFC’s efforts to introduce reforms in agriculture, livestock, minerals, mining, IT, and telecom sectors have proven effective. Efforts to curb smuggling, address tax evaders and electricity thieves, and increase agricultural production, particularly in cotton and wheat, highlight the positive impact of the SIFC.
A strategy for long-term investment has been developed, which aims to minimize bureaucratic interference and leverage the expertise of the Pakistani military to achieve horizontal and vertical integration. Eliminating subsidies in the energy sector and establishing financial discipline has begun to stabilize the economy. Despite a lower tax rate relative to GDP, there has been a minimal gap in tax collection. To create room for development budgets, better tax policies, administrative measures, and improvements in overall social and economic development and public governance are needed.
Over time, bold financial reforms could potentially contribute more than 12% of GDP in the new financial environment, three times the additional resources needed to address human development gaps. Sustainable public finances in Pakistan will ultimately require robust economic growth. Pakistan must strive for a more dynamic and open economy.
A challenging business environment deters investment, as strong state presence in competitive markets is crucial. Tax inefficiencies also discourage productive investment and support non-commercial sectors like real estate. Accelerating the sale of productive assets or selectively attracting foreign investment could bring in much-needed foreign exchange in the short term, but fundamental issues behind low investment and reduced productive growth need to be addressed immediately for long-term effects.
Given the challenges of climate change and increasing water scarcity, the agricultural sector needs transformation to ensure food security. Current subsidies, government procurement, and price restrictions have trapped farmers in low-price, non-diverse cultivation systems requiring more water. These subsidies should be reallocated to public goods such as seeds, veterinary services, and irrigation research. Promoting regenerative agriculture and building integrated agricultural value chains and drainage services can enhance production benefits, increase on-farm and off-farm income, and make Pakistan more resilient to climate shocks.
Addressing the inefficiencies in the energy sector promptly and consistently is essential, as they have long been a waste of public resources. Recent tariff increases have helped limit losses while protecting poor consumers, but significant reductions in large distribution and transmission losses, combined with high production costs, are needed to make the sector sustainable. Fortunately, Pakistan has access to some of the cheapest hydropower and solar energy resources.
To benefit from these, investment is needed, which will only come if long-standing issues in distribution and transmission systems are resolved, especially through increased private partnerships. Additionally, tariff adjustments necessary for cost recovery must be insulated from politics to provide reliable long-term incentives for investors. These policy changes cannot be achieved solely at the federal level; local governments must be empowered to raise and allocate funds effectively for essential local services.
In reality, Pakistan’s economy heavily relies on the support of international financial institutions and friendly countries. Our financial dependence on these institutions is evident from our total external debt exceeding 64 trillion rupees, while our foreign exchange reserves are limited to 9 billion dollars. We need at least 22 billion dollars annually to service external debts. In such conditions, providing basic needs such as affordable electricity, gas, food, healthcare, and education is challenging, as our national revenue falls significantly short of the required resources.
Moreover, we need billions of dollars annually to repay external debt and its interest. Pakistan requires a comprehensive long-term economic development strategy with clear targets, timelines, and monitoring mechanisms for effective implementation and sustainable development. First, Pakistan must address its human capital crisis. Seven percent of children die before their fifth birthday, which is many times higher compared to other countries.
Forty percent of children under five suffer from stunted growth, with rates exceeding 50% in poor districts. While it is possible to reduce stunting rates over a decade, this requires expanding beyond traditional focus on nutrition and health to include access to clean water, sanitation, birth spacing services, and improved living conditions. To enhance service delivery and human capital development, Pakistan must create more fiscal space. Tax collection has remained below 10% of GDP for decades.
Eliminating expensive tax exemptions and reducing compliance costs could quickly generate about 3% of GDP in additional revenue. Further increases can be achieved provincially and locally from low-tax sectors such as real estate, agriculture, and retail. Savings from better management of public resources could also be achieved. Most loss-making state-owned enterprises should be privatized, and subsidies based on poor targets in agriculture and energy should be cut while protecting the poorest. The gap between federal and provincial spending should also be reduced.
These measures could potentially save an additional 3% of GDP annually. Comprehensive and sustainable development promotion is crucial for the country’s economic recovery, and self-reliance is essential for national prosperity. We must reduce reliance on loans and foreign aid. Increased domestic investment and trade will enhance economic and social development. Utilizing modern technology in line with current demands is vital. Our collective development depends on Pakistan’s progress. Consistent policies and steadfastness are needed to nurture new signs of stability and deliver their benefits to the average citizen.