Ahsan Siddiqui

Pakistan, a nation with a rich history, vibrant culture, and a population exceeding 220 million, stands at a crossroads in its economic journey. In recent years, Pakistan has grappled with a range of economic challenges while simultaneously holding the key to significant opportunities.

Pakistan has been grappling with stubbornly high inflation rates. A combination of factors, including global commodity price fluctuations and supply chain disruptions, has posed challenges to price stability. Addressing this issue is crucial for safeguarding the purchasing power of ordinary citizens. The country has been caught in a cycle of fiscal deficits, where government expenditures consistently surpass revenues. As a result, Pakistan has accumulated a substantial public debt. Effective fiscal management is imperative to restore balance and fiscal sustainability. Pakistan’s trade balance reflects a deficit, with the value of imports outpacing exports. Correcting this imbalance is vital for reducing external vulnerabilities and building a more robust economy. Power shortages and inadequate infrastructure have plagued Pakistan for years, hampering industrial productivity. A stable energy supply is a prerequisite for economic growth and a flourishing manufacturing sector.

“Economic Revival Measures by the Caretaker Government”

The caretaker government is firmly committed to addressing economic challenges and seizing opportunities to restore economic stability and prosperity in Pakistan. Key measures have been adopted to navigate the country out of the ongoing financial turmoil.

Strengthening Institutions

The caretaker government has embraced a comprehensive approach to governance by strengthening key institutions to tackle a multitude of challenges. It has assigned the Ministry of Finance the responsibility of coordinating policies and actions across all economic ministries as part of the Economic Revival Plan. Several key committees, including ECC, ECNEC, Cabinet Committee on State-Owned Enterprises (SOEs), and CC Privatization, have been made operational. Regular Cabinet meetings are held to facilitate decision-making, and efforts are underway to enhance coordination between the federal and provincial governments, reducing overlaps and optimizing resource allocation.

Measures Taken by the Caretaker Government

The caretaker government has taken proactive measures to stabilize the economy and restore market confidence. These efforts are anchored around the IMF stabilization package, which has yielded positive results. The IMF disbursed $1.2 billion in July 2023, further bolstered by $3 billion in bilateral assistance from countries like Saudi Arabia and the UAE. As a result, Pakistan’s State Bank’s foreign exchange reserves have grown substantially, reaching $7.6 billion in September, a significant improvement from $4.5 billion in June.

Trade and investment flows have normalized due to the removal of import bans, increasing the availability of raw materials for industries. The government has eased import restrictions, allowing Letters of Credit (L/Cs) for imports and clearing the backlog of import payments. Foreign investors can now repatriate profits, with $49.2 million repatriated in July and August, marking a 74% increase.

Efforts to stabilize the exchange rate market have been successful. The spread between interbank and open market rates has substantially reduced, strengthening the Pakistani Rupee (PKR) by 6.4% in the interbank market and 13% in the open market. The government has fast-tracked concessional project and program loans from multilateral institutions like the World Bank, Asian Development Bank, Islamic Development Bank, and Asian Infrastructure Investment Bank.

In addition, the government is working to promote remittances through banking channels, launching the Sohni Dharti initiative with a budget allocation of Rs 80 billion to increase remittances, targeting $32 billion in remittances for FY24. Digital banking and online payment systems have been introduced to enhance financial inclusion and support growth.

The Pakistan Stock Exchange (PSX) has seen a 3% rally in September 2023, supported by record profits from banks and energy companies. The government is also taking steps to address inflation, with plans to provide around Rs 1 trillion in subsidies in FY2024. Inflation has already declined to 27.3% in August, down from its peak of 38% in May 2023, and the State Bank of Pakistan (SBP) forecasts a sharp decline in 2024, with an estimated average inflation rate of 20-22%.

The Benazir Income Support Program (BISP) has expanded its coverage and increased cash assistance to provide support to more households in need.

Growth Outlook

Economic growth is on the horizon, with improvements in industrial activity and higher crop production. The government is targeting a GDP growth rate of 3.5% in FY2024, a significant improvement from the 0.3% growth in FY2023. Several sectors, including power generation, petroleum sales, cement, auto sales, and fertilizer offtake, have witnessed positive trends, indicating a recovery in economic activity.

Managing the External Account

Efforts to stabilize the external account deficit (CAD) are paying off, with a significant decline from $17.5 billion (4.7% of GDP) in FY22 to $2.4 billion (0.7% of GDP) in FY23. In the first two months of the current fiscal year, CAD has continued to decline, by 54% to $0.9 billion. The full-year CAD is projected to stabilize around $6.5 billion (1.5% of GDP) in FY2024 as trade and investment flows normalize.

While there was a decline in workers’ remittances last year, measures are in place to address this issue. The government has taken steps to curb speculative activities of exchange companies, which has contributed to the appreciation of the Pakistani Rupee.

Inflation Measures

Several measures are being implemented to address inflation, including oversight and monitoring of essential food item prices, an independent Monetary Policy Committee for implementing inflation targeting, and reforms in the exchange companies to reduce market volatility. The government recognizes that structural issues, such as public debt, energy circular debt, and trade deficits, are the main drivers of inflation and is actively taking corrective fiscal actions to alleviate these challenges.

Significant enhancements in budget allocations have been made for social safety nets, including the Benazir Income Support Program (BISP) and Benazir Education Stipends, to assist vulnerable segments of the population. Measures to improve nutrition and combat malnutrition are also a part of the government’s strategy.

Revenue Measures & Strategy

Efforts are being made to modernize the Federal Board of Revenue (FBR) using technology to enhance compliance. Tax policy reforms, including amendments for retail, agriculture, and real estate, are in progress. Measures like wealth tax on movable assets, the removal of tax exemptions, and simplification of tax returns are part of the strategy. Initiatives such as digitizing supply chains, simplifying documentation rules for third-party data integration, and anti-sales tax fraud measures are aimed at improving revenue collection.

Debt Management Strategy

The government recognizes the need for prudent debt management in light of the rising public debt due to interest rate hikes and exchange rate devaluation. It is actively working to extend the maturity profile of debt and explore innovative financial instruments. The government has garnered positive responses from markets, with T-bill auctions witnessing declining yields on government paper, indicating investor confidence.

The caretaker government’s commitment to economic revival and its comprehensive approach to addressing challenges are showing positive results. With measures to stabilize the external account, combat inflation, and stimulate growth, Pakistan is on the path to a more stable and prosperous future. The focus on transparency and accountability, as well as strengthening key institutions, demonstrates a commitment to good

In conclusion, Pakistan’s economic journey is marked by its determination to overcome challenges while capitalizing on opportunities. Tackling issues like inflation, fiscal deficits, and energy shortages is vital for sustainable economic growth. Yet, the nation’s agricultural sector, the ambitious CPEC project, a thriving IT industry, and its youthful population represent promising avenues for development. Success will hinge on effective governance, continued structural reforms, and prudent economic management. Pakistan’s path to economic prosperity is an ongoing story, and the world is watching with anticipation.