Pakistan is going through a challenging time marked by political and economic disparities including fiscal deficits, current account deficits, persistent high taxes, double-digit inflation, trade deficit, burgeoning debts, structural impediments, high expenditures with borrowed resources, and energy shortages. The issues are further exacerbated by the political and social polarizations adding to the complexities of Pakistan’s economic landscape. Nevertheless, the prevailing conditions are distressing for the economy of the country with a low-income base and high expenditure trends.
The current expenditure of Pakistan accounts for 17.1% of the total expenditure of the country whereas the developmental expenditure is declining substantially.
Within the current expenditure, defense expenditure has also significantly decreased currently standing at 1.9% in 2022-23 as compared to 4.7% in the 1990s. While the debt, growing at around 14% per year on average as compared to the GDP growth of only 3% per year on average, is leading to an unsustainable debt burden. In the fiscal year 2022–23, the debt servicing obligations of Rs. 5.2 trillion exceeds the entire federal government revenue.
Besides, there is a disconnect between the economy and taxation. A narrow tax base and weak tax administration are contributing to a budget deficit of an average of 7.0% of GDP causing a rapid increase in the public debt. Among 55% of registered corporations with SECP, merely 45% are complying with the taxes and 80% of the total income generated through tax resources originates from only 10 commodities.
Yet other challenges being faced by Pakistan encompass the devaluation of its currency, external and public debt, and a hike in the interest rate at a substantial cost. Starting from $145 million in 1959-60, Pakistan’s external debt and liabilities have surged to $128,091 million by 2023. The unprecedented and persistent double-digit inflation in Pakistan is reaching approximately 30%. Moreover, Pakistan owes 122.3% interest on its net federal revenue depicting that 22.3% of the debt Pakistan remunerates is more than the total federal revenue it generates.
High interest rate, gives a hike to the inflation in the country resulting in abject poverty driving the society towards unrest, intolerance, and extremism.
Besides, the external account of Pakistan has always been a cause for concern, primarily due to the lack of an export-oriented growth strategy. Pakistan’s export growth has been minimal, increasing from $25.1 billion in 2013-14 to $27.9 billion in 2022-23. It demands fostering a trade base, attracting investments, and promoting industrial growth. The challenges and opportunities in this endeavor require a nuanced approach, combining domestic reforms with global engagement.
Addressing these challenges requires a robust and nuanced approach to sustainable economic growth and national stability through mobilizing adequate resources, adopting a rational approach to spending and earnings, and a strong desire to improve the economy by adopting bold reforms, attracting FDI, improving local business, introducing tax reforms, levying taxes on small business, adopting research-based initiatives to collect tax and reassessing the roles of regulatory bodies. The key to attaining sustainable growth lies in trusting in the state’s potential and resources and implementing already identified solutions ensuring institutional strength and better governance.
Sayyeda Aqsa Sajjad is PhD Scholar (IR-NDU) and has worked on various public policy issues as Policy Researcher in different Think-Tanks. Currently she is working as Research Associate-NUST Institute of Policy Studies. She can be reached at firstname.lastname@example.org