The economic setting of Pakistan is experiencing both growth and unsolved hurdles, and there are several encouraging pointers marking the contribution of the continuing changes in financial and economic structures. The Ministry of Finance estimates that the first half of the current financial year has been raising some positive poles, especially where remittances, tax collection, and export level are concerned.

Remittances surged to $34.89 billion, an impressive 28.8% rise over the previous year.

There are still problems of imbalance in trade, inflation and deteriorating foreign investment that leave a question mark on general economy. These challenges are, however, beginning to bear fruits on the reform agenda of the government and the economy is headed towards possibly a more stable future should there be appropriate solutions found to the prevailing issues of concern.

Among the greatest positive effects on the economy in the 11 months duration has been the boost of remittances. The astonishing remittance of overseas Pakistanis to their country makes the figure reached as far as $34.89 billion, whereas this figure marks a growth of an impressive 28.8 percent against the last financial year. This growth has been very instrumental in stabilizing the foreign exchange reserves and helping in buttressing the national currency in a period of global financial uncertainty.

Besides remittances, exports have also increased slightly by 4 percent to reach into the figure of $29.69 billion. Such improvement in exports means that the demand of Pakistan goods in the foreign markets is on recovery path, and the government policies on export competitiveness are partially successful. Nevertheless, it is important to consider the bigger picture of enhancing imports, such that the level of export growth is not enough to save the trade deficit at present.

Even though the exports have been increasing, the imports have been increasing at a much higher rate, 11.5 percent and they amounted to 54.8 billion at the end of the same period. This growing difference between imports and exports is still a burden to the current account balance and foreign reserves of the country. The trade balance that Pakistan is striving to achieve will have to be proportional to almost doubling the export volume. This would not only decrease the dependence on import but also assist in curbing the strains on rupee and foreign exchanges.

To attain this, some strategic investment in the main industries like textiles, information technology, agriculture and value addition manufacturing must be there. Meanwhile, import replacement policy and local industry support will be very important in closing the trade deficit.

Imports outpaced exports, reaching $54.8 billion, widening the trade deficit.

At the provincial level, the implementation of substantive care as a policy by the Federal Board of Revenue (FBR). The FBR has managed to collect taxes amounting to Rs10,234 billion during the last 11 months, an increment of 25.9 percent of the tax collection of Rs8,126 billion at the same time last year. This remarkable increase is a sign of a better compliance, enforcement and perhaps on the wider front of the expansion of the taxation efforts as pursued under the financial policies of the government.

Moreover, non-tax revenues have revealed an even higher dramatic improvement. They surged up by 68.1 per cent to reach Rs4,354 billion as opposed to Rs2,590 billion during the same period during fiscal year. This is non-tax revenue, such as those earned by state assets and licensing, among other government revenues, and it has been very crucial in the support of the government coffers, especially when tax earnings alone cannot enable the government to take care of its expenditure requirements.

Nevertheless, FBR is left with a big gap of about Rs1.25 trillion in the annual tax collection target, even after the body cut the target twice in the fiscal year. This gap highlights the structural problems that have always plagued the Pakistani tax regime such as tax evasion, lack of a widened tax base and inefficiencies in tax administration. This gap will have to be bridged both by long-term reforms and short-term strategies to increase tax net, document the economy better and impose harsh penalties on non-compliances.

After falling to an all-time low of below 1 percent, in April, a rate not witnessed in sixty years, inflation has since risen to between 3-4 percent. Although this rate is still comparatively low as compared to the previous years, it has the tendency to with increase in the forthcoming months following the spike in the prices of petroleum and gas prices. These surges create a belligerent impact on the price of transportation, manufacturing and basic products that will soon carry over to bigger inflationary tensions at the household level.

FBR’s tax collection rose by 25.9%, yet a Rs1.25 trillion gap remains.

Keeping the balance of required changes in the level of energy charges and social protection of weak layers of the population, the government must control the effect of the inflation level. Subsidy rationalization policies, energy-saving measures, and well-behaved cash crossings are all that can cushion the poor against the impact of the price hikes.

The Pak security market made a resounding improvement as the Pakistan Stock Exchange (PSX) scaled new heights to record pre-historic performance on the opening day of new fiscal year. Such rally indicates increased confidence by the investors based on advances on the macro-economic data, excellent fiscal messages, and expectation of economic stability. The PSX performance is often regarded as a serious indicator of the economic sentiment and its bullish trend indicates that the local investors are upbeat about growth possibilities.

Foreign direct investment (FDI) has on the other hand decreased by 7.6 percent in the same eleven months period amidst the domestic market excitement as indicated in the Monthly Economic Outlook Report. This is worrisome because prolonged and extensive foreign investment is crucial in accelerating the growth of the economy, transfer of technology, and creation of jobs. The fall in FDI represents the worries of the investors concerning the security, uncertainties of the regulation and macroeconomic vulnerability.

The threat of terrorism has continuously threatened to sabotage foreign investments and the low performance of various economies as well. Despite recent years of improving security conditions, the threat of isolated cases and destabilization of the whole region remains in front of investors. Countries require an efficient way of counterterrorism where consultations among the various stakeholders were done thoroughly and founded on tactical intelligence and coupled with concerted efforts to ensure continuity of safety and a favourable business environment.

Foreign direct investment declined by 7.6%, highlighting investor concerns over security and policy uncertainty.

Although the July-May economic statistics indicate that the trend is going in the right direction in most of the sectors, including the flow of remittances, government tax collection, and stock market results, there are still serious problems. The trade deficit, inflationary risks, and shrinking foreign investment should be solved via the smart moves of policies, long-term reforms, and orientation towards better security. Provided that determination as well as foresight is ready to face these challenges, Pakistan will be able to continue with its present advancements and establish a pretext to its economic prosperity in the long run.

Disclaimer: The opinions expressed in this article are solely those of the author. They do not represent the views, beliefs, or policies of the Stratheia.