Entrenched inequality

LAHORE: The economic situation in Pakistan is quite complex, marked by deep-rooted inequality, an overburdened middle class, and significant inefficiencies within state-owned enterprises. Tackling these challenges demands a comprehensive strategy and a robust political will that remains elusive.

While the solutions to the economic crisis are known to those managing Pakistan’s economy, every proposed improvement tends to adversely affect a small yet influential segment of the population that wields substantial power. Media pressure is raising public awareness and urging policymakers to act, though progress remains slow.

To address these issues, the government must reduce its reliance on indirect taxes, which disproportionately burden the poor. Instead, it should broaden the direct tax base by implementing more effective measures to capture untaxed or under-taxed sectors, such as agriculture and real estate.

A more progressive tax system is essential, where higher-income earners, including the elite and corporate sectors, are taxed at higher rates. The salaried class, though not high earners, currently pays significantly more in taxes compared to sectors like textiles. This adjustment is crucial for reducing inequality.

Tax incentives should be offered to businesses and individuals who comply with tax laws, accompanied by stricter penalties for evasion. Rather than pursuing full privatization -- which faces strong political resistance -- the government could explore partial privatization or public-private partnerships (PPPs). This approach would retain some state control while improving efficiency through private sector involvement. Transparency in this process is vital, and the proceeds should be used to reduce public debt or reinvest in critical infrastructure.

Strengthening anti-corruption measures within the power sector is imperative. Establishing independent oversight bodies to monitor procurement and distribution processes, along with investing in modernizing the energy infrastructure to reduce transmission and distribution losses and promote energy efficiency, is necessary. Encouraging the development of renewable energy projects by removing existing bottlenecks will help reduce dependency on costly imported fuels. Subsidies should be redirected from the elite -- such as free power for government officials, the bureaucracy, and the judiciary -- towards targeted social programmes that directly benefit the poor, including cash transfers, food programmes, and education.

Job creation programmes should focus on small and medium enterprises (SMEs), which are more labour-intensive and can absorb a larger portion of the workforce. The government should cut non-essential and luxury expenditures, such as extravagant perks for officials, and implement performance-based budgeting to ensure resources are used more effectively. Savings should be redirected towards essential services like healthcare, education, and infrastructure.

Currently, the ruling elite and bureaucracy are disconnected from people. To build broader support, planners should launch campaigns to educate people about the need for reforms, particularly in the tax system and privatization of state-owned enterprises. Engaging in dialogue with key stakeholders, including labour unions, business leaders, and civil society organizations, is crucial for building consensus around necessary reforms.

Investing in key institutions like the judiciary, anti-corruption agencies, and regulatory bodies is essential to ensure that laws and policies are enforced fairly and effectively. Decentralizing certain government functions to provincial or local levels can reduce inefficiencies and bring governance closer to the people.

Rather than offering specific guarantees to foreign investors, the government should attract foreign direct investment (FDI) by improving the ease of doing business, ensuring political stability, and providing incentives for investors in key sectors.

By addressing these areas, Pakistan could potentially stabilize its economy, reduce inequality, and create a more sustainable and equitable economic environment for its citizens. However, these reforms will require strong political will, public support, and a commitment to transparency and accountability.