Stabilizing the national economy

Stabilizing the national economy

 Most analysts believe that institutional interventions are partly to blame for the current state of the economy. It is encouraging that the army's command has changed without a hitch and has made it clear that it will not get involved in politics. On November 24, Prime Minister Shahbaz Sharif appointed Gen. Asim Munir to the position of chief of army staff, putting to rest any media speculation.

Prior to this, national outrage had been caused by politics surrounding the COAS's appointment. By requesting an extension of service for Gen. Bajwa or calling elections prior to his retirement, the PTI leadership had been attempting to exert pressure on the government. Despite the fact that a third of the country was flooded, inflation was around 26%, the policy rate was 16%, the stock market was constantly falling, and foreign exchange reserves were so low that they couldn't keep up with imports for a month. The issue was given too much importance.

Pakistan is enrolled in a program run by the International Monetary Fund (IMF). The eighth review is finished. Pakistan was scheduled to receive a visit from an IMF delegation in November. Reuters reports that the International Monetary Fund (IMF) has resumed negotiations with Pakistan in preparation for the upcoming ninth review of the Extended Fund Facility (EFF) program.

Pakistan has already provided the IMF team with fiscal data, including information regarding flood-related expenditures. In advance of the delegation's visit to Pakistan, the IMF is currently reviewing. It has not been specified when the review will be finished and the subsequent tranche will be made available.

The perception that Pakistan is close to an external default appears to be supported by recent writings by the former federal minister Miftah Ismail. Additionally, he has expressed concerns regarding the program's successful completion. The PDM government appears unwilling to implement fiscal reforms despite facing severe fiscal challenges, including the risk of default.

The reform agendas that Pakistan's previous governments agreed upon with the global lender have not been carried out, let alone the fundamental structural reforms related to governance, the judiciary, agriculture, and land use. The EFF program has been extended by the IMF until June 30, 2023, and access has been increased by SDR 720 million, but only if corrective measures and policy commitments are made.

The IMF specifically mentioned in its country report, which was released on September 1, that the overall program performance had remained weak since the conclusion of the previous review and up until recently. The fiscal and structural reforms agenda was not fully implemented, and several quantitative criteria were not met.

The report focuses specifically on Pakistan's failure to meet four indicative targets: i) Benazir Income Support Program (BISP) targeted spending as a result of a slower than anticipated enrollment in the unconditional cash transfer (UCT); ii) insufficient funding for health and education as a result of less spending on the procurement of the Covid-19 vaccine in FY22 (Q3) and on education as a result of the implementation of Covid restrictions; ( iii) the total amount of unpaid tax refunds due to administrative delays; and (iv) payment arrears in the power sector as a result of delayed tariff adjustments, higher-than-anticipated generation costs, and financial costs. The report also mentions that these goals were not met in March 2022 for the same reasons.

State-owned enterprises (SOEs) reforms to enhance governance, guarantee transparency, reduce financial risks, and boost efficiency have been ignored by our political elite. The State Owned Enterprises (Governance and Operations) Act 2021 was passed by the National Assembly on June 6, 2022, but the Senate has yet to approve it. This has been pointed out in a number of international reports, including one from the World Bank that shows that the SOEs' profitability is rapidly declining.

In its report, Hidden Debt, the World Bank: According to Solutions to Avert the Next Financial Crisis in South Asia, the average rate of income loss between 2014 and 2017 was approximately 57%. It also emphasizes that the energy and transportation sectors accounted for 95% of SOE revenue in Pakistan.

The SOE sector in both Pakistan and India is larger than the international average, according to the report. To avoid significant losses to the Pakistani treasury, no government has been interested in reforming it. To improve citizens' standard of living, the money could have been put into the social sector.

In addition to SOE reforms, Pakistan needs fundamental structural reforms through a comprehensive control system to improve ineffective and out-of-date governance. This will ensure that all institutions operate within their defined domains and are subject to meaningful and effective accountability.

Another sector that requires immediate reforms is the real estate industry. Through the Finance Act of 2022, the PDM government attempted to levy taxes on non-productive assets, but the legislation was of poor quality and violated the constitution. There is no documentation required to enforce these measures.

Using tools for identification and monitoring, the government ought to create a transparent system of electronic property titles. The agricultural sector should also see reforms implemented by the government. Our population is heavily dependent on agricultural income. We ought to offer them facilities for increasing production. Equal taxation for high earners, particularly absentee landowners, must also be implemented by provincial governments.

It goes without saying that the production of electricity and the purchase of petroleum products consume a significant portion of revenues. Another difficult obstacle is the enormous circular debt that exists for both gas and electricity. We have the opportunity to reduce losses by introducing alternative energy sources like solar and wind, but these options are limited by import restrictions.

The government needs to realize that if we don't take practical steps to reduce waste, we won't be able to get out of the fiscal mess. The more quickly they realize this, the better. It is abundantly clear that neither bilateral agreements nor requests for funds from the IMF will significantly assist us in achieving our fiscal targets. More than 220 million people live here; We cannot survive on IMF tranches of one billion dollars or pledges from China and Saudi Arabia.