In a recent Gallup Pakistan survey, an astonishing 77 percent of respondents expressed dissatisfaction with the current state of affairs. 69 percent considered the present economic situation as very bad or bad. Only 15 percent believe that the country’s economic situation will significantly improve over the next 12 months. In essence, Pakistan is at a pivotal point, with the population seeking radical change that improves their lives and livelihoods.
The discontent with the status quo could be an opportunity for transformation if the political mandate aligns with policy implementation to address the deep underlying macroeconomic imbalances. These imbalances include large fiscal deficits, low industrial and agricultural productivity, and a fragile balance-of-payments position with the looming prospect of default.
Over the last decade, Pakistan’s dependence on cash injections from friendly countries and global multilateral lenders has grown, leading to a total public debt expansion to 74.3 percent of GDP at the end of FY2023 from 63.3 percent in FY2013. As the debt becomes progressively less sustainable, Pakistan’s access to international credit markets has effectively been shut. Pakistani policymakers, therefore, view the prospect of direct investments from Gulf countries as the latest remedy to the crisis. The hope is that the dollar booster will bolster the perennially anemic reserves, galvanize economic revival, and extricate the country from the vicious cycle of no growth and increasingly unsustainable debt servicing that has little room for investment needed for basic services and human capital development – essential capabilities required for future growth.
Irrespective of whether multi-billion-dollar investments materialize, they are unlikely to serve as an alternative to sound policies that address the fundamental weaknesses in the economy. More disconcertingly, the desire for a silver bullet solution to all that ails the economy suggests that the penny has still not dropped among the power circles about the nature of the crises or their severity.
Even if they do materialize, the investments will only provide temporary relief to the liquidity crunch. They will not eliminate the low productivity structure To address the fiscal crisis, it is imperative that overall government expenditures be reduced through privatization and rationalization of state expenditure. However, this alone will not sufficiently alleviate the gargantuan problem that besets state finances. There is an inescapable and urgent need for effective resource mobilization through equitable tax policies that significantly broaden the tax base to include agriculture, retail, property, and service sectors, notwithstanding the delineation of taxation authority between provinces and the federal government.
