The country’s economy is currently facing significant challenges, with the public debt burden continuing to escalate and its external financing requirements exceeding its available resources.
To avoid default and stabilise the economy, the government needs to undertake significant reforms to address its economic weaknesses and restore investor confidence.
The government’s primary challenge is to increase revenue collection by broadening the tax base and improving tax administration. Pakistan’s tax-to-GDP ratio remains one of the lowest in the region, with only 1.3% of the population paying income tax. This has resulted in a significant shortfall in government revenues, making it difficult for the government to meet its debt obligations and maintain essential services. The government should prioritise revenue collection by strengthening the tax collection infrastructure and expanding the tax base to include more taxpayers.
To reduce non-essential spending, the government should prioritise cutting its defence and subsidy budgets. The defence budget is one of the largest items of government spending, and reducing it would free up resources that could be used to finance growth-enhancing investments, such as education, health, and infrastructure. Similarly, subsidies for essential commodities such as electricity and gas have increased the government’s debt burden and need to be reevaluated to ensure that they are targeted towards those who need them the most.
In addition to revenue and spending measures, Pakistan needs to promote export-oriented growth by improving its competitiveness in global markets. One way of achieving this is by enhancing productivity and reducing the cost of doing business. Pakistan’s cost of doing business is relatively high, making it difficult for the country to compete with other regional economies. Reducing bureaucratic hurdles and streamlining business procedures would attract foreign investment and create a favorable environment for business. The government needs to develop policies that promote exports and create a level playing field for local businesses to compete globally.
Finally, the government needs to engage with international financial institutions to develop a comprehensive debt management plan to restructure its debt obligations and avoid default. Pakistan’s external debt has been rising, with external financing requirements exceeding the country’s available resources. The government needs to renegotiate its debt terms to ease the burden of interest payments and extend the maturity period of its debt obligations.
Pakistan can learn from other countries that have successfully managed their debt crises. For example, Malaysia implemented comprehensive reforms to reduce its fiscal deficit and restore investor confidence during the Asian financial crisis in the late 1990s. Similarly, Greece implemented austerity measures and structural reforms to reduce its debt burden and restore economic stability after its debt crisis in 2010.
In conclusion, Pakistan’s economic challenges require urgent and bold measures to avoid default and stabilize the economy. The government needs to take immediate action to address the root causes of the problem and build a strong and resilient economy that can withstand future shocks. By implementing measures such as increasing revenue collection, cutting down non-essential spending, promoting export-oriented growth, and engaging with international financial institutions to develop a comprehensive debt management plan, Pakistan can position itself for long-term economic growth and prosperity.