The economic system is the lifeboat of any nation. A robust economy of a country not only demonstrates its potential growth in the international market but also ensures its people’s human security. In the case of Pakistan, economic security is also mentioned as the core principle of national security policy, reiterating that human security directly links to the economic security its citizens would have. But unfortunately, the ideal scenario limits itself to a theoretical framework only. A practical implication is yet to be seen. Therefore, robust measures are needed to strengthen our fiscal policy to improve Pakistan’s economy, eventually creating a potent economy.
The current tattered economy with a widening fiscal deficit has brought the country to the verge of collapse.
The fiscal deficit appears when the revenue generated by the government is not equal to government expenditure. In other words, the fiscal deficit results from low national income and high government expenditure. Now, a billion-dollar question arises: despite paying high sales taxes, why can the government not generate ample national income, and why cannot the paid taxes fulfill the government’s expenditure?
Primarily, less revenue generation is the consequence of the taxation dilemma in Pakistan, shrinking industrial production, and Pakistan’s sole dependence on remittances. Indirect taxes heavily dominate our low tax revenue. According to Economic Survey Report 2023, indirect taxes contribute 12.9% of the GDP. Even though direct taxes are crucial to run a country’s economy, direct taxes in Pakistan constitute only 2% of the GDP. Pakistan’s low collection from direct taxes is primarily due to weak tax compliance and many exemptions. Because of this unjust system, even traders, shopkeepers, and industrialists save the tax. Politicians and government officials prefer to buy properties abroad and expand their business there.
Industrial production is an integral part of the Country’s economy. In Pakistan, this sector has also fallen prey to its misgovernment. Due to a lack of resources and internal corruption, industries cannot produce quality and effective goods. Therefore, these goods don’t meet international standards and can’t be exported. This setback generates low income and disturbs BOP, creating a trade deficit.
Now comes the question of high government expenditure. Unfortunately, theft, corruption, and wastage of our national income are deeply entrenched in our governance system. Our government spends billions on unnecessary and non-productive state affairs. For instance, no country requires more than 14 ministries to run its state affairs; the mighty USA has 15 ministries to satisfy the political appetite of 320 million, and Germany does the same with 7 ministries. On the contrary, Pakistan can still not cater to its people with 32 ministries. Despite the economic recession, we still lift the economic burden of these unnecessary ministries, having no performance at all.
Tax servicing is yet another challenge Pakistan faces. Pakistan, since its inception, has been a debt-based economy.
The government has received long and short-term bailout packages from the IMF, World Bank, and countries like China, Qatar, and Saudi Arabia. Thus, a large chunk of our national income is spent on paying loan installments with high-interest rates.
Pakistan, like many nations, stands at a crossroads when it comes to defense. A breakdown of the latest allocations reveals that the military got the lion’s share of Rs.824.6 billion of the total budget, followed by Air Force and Navy getting Rs.368.5 billion and Rs.188.2 billion, respectively. These soaring statistics suggest government should revise its defense budget and bring about effective transitions, ensuring state security as well.
Given the evidence of a widening fiscal deficit, it is high time for the government to frame immediate remedial policies to narrow the deficit. Bringing tax reforms is a pressing need for the government. Therefore, legal action must be taken against the entities who refuse to pay taxes or exempt themselves from this duty.
Our small and cottage industries must be improved by marketing facilities and setting up technical service centers. The use of raw materials and renewable energy resources must be encouraged. The measures mentioned above can be taken to prepare alternate imported products and reduce imports, maintaining BOP. The results would increase the national income and eventually narrow down the trade deficit.
The government needs to abolish all the unnecessary pumps and show expenditure to power its expenditure.
The government must achieve a sufficient policy for good governance. Along with that, the number of ministries should also be reduced to 14 or 15. Unnecessary ministries such as statistics, history, and privatization should be discarded. Ministries such as Science and technology, information technology, and then ministries of textile commerce can be merged. Lowering the defense budget is yet another measure that the government should acknowledge. With a consensus, the civil and military leadership should invest in cost-effective technology and modernize equipment gradually instead of frequent large-scale purchases.
The policy recommendations in this article can prove effective if given the practical implications. A state’s judicial system plays a crucial role in ensuring the swift implementation of the policies. In Pakistan’s case, things run the other way. For instance, Pakistan’s law and order system has been active in ensuring previous fiscal policies. Thus, the most important remedial action becomes a question of Pakistan’s governance system.
The author is pursuing a Peace and Conflict Studies degree from the National Defence University Islamabad and is associated with the Islamabad Policy Research Institute. She can be reached at firstname.lastname@example.org, and she Tweets @zainabimran99