Fixing the economy

Pakistan’s GDP is $263 billion; and the country’s expenditure is more than its income. According to the Pakistan Economic Survey, the fiscal deficit is around Rs4 trillion. Therefore, the government is compelled to seek foreign loans to meet its needs.

Debt servicing in Pakistan is 45.6 per cent of the total expenditure. With this situation at hand, Rs800 million has been allocated for public-sector development in this year’s budget. In the last budget, Rs900 million rupees had been allocated for public-sector development with a range of projects from road construction to building of colleges and hospitals.

One may ask whether anyone has thought of scrutinizing the projects. How many projects have been completed, how many of them need more funds? The amount is allocated by the federal government without taking into account a proper estimation of the need. Then, surprisingly, Rs699 billion has been allocated for subsidies, the burden of which will automatically be borne by the state which is already thin on credit.

Pakistan’s exports are worryingly low, amounting to $26.8 billion, when compared with imports. The import bill has grown compared with the previous year. A major chunk of import is oil, which is not only used for mobility but also for electricity production. Other than oil, Pakistan also relies on coal for electricity generation. We import coal as well. Ominously, it is projected that Pakistan doesn’t have money to pay its import bills for more than two months.

The economic situation is bleak. However, there is always a way out from a chaotic situation. Often huge problems have simple solutions. Instead of just relying on ‘friendly countries’ or the IMF, Pakistan should focus on indigenous solutions to its problems. First, there should be strict accountability of the funds spent in the previous fiscal year to avoid unnecessary expenses in the impending fiscal year. Second, Pakistan can reduce its import bill by completely switching to alternate energy resources, as far as electricity generation is concerned.

According to a World Bank study, Pakistan has massive solar resource potential. If Pakistan utilizes only 0.071 per cent of its area for solar PV installation, the electricity produced by it would meet the demand. The country can become self-reliant in terms of electricity by making use of alternate energy resources. Similarly, Global Wind Atlas indicated that wind resource Balochistan can also be used to generate electricity. It is high time we started implementing alternative energy resources for power generation; this will help reduce the import bill.

In the first phase, the power generation plants that are already in place can be switched to alternative energy resources. Then more alternate energy dependent plants can be installed.

Additionally, in order to reduce the import bill, Pakistan can simply stop unnecessary imports for one or two years. Instead, it should focus internally on manufacturing. The country has huge potential; only an investment friendly environment needs to be created so it can develop manufacturing ability of its own.

Pakistan’s large-scale industry is limited, consisting of textiles, food beverages, tobacco and automobiles. Automobiles are also assembled rather than manufactured in Pakistan. By easing the business structure, investors can be attracted to invest in industry.

Fourth, a country earns through taxes. Tax contributes around 10 per cent to our GDP. But Pakistanis are more inclined towards giving charity than paying taxes. According to Active Tax Payer lists, prepared by the Federal Board of Revenue, only 2.2 million people (including companies) pay tax.

The FBR has failed to increase the tax base. Instead, the state has imposed a sales tax of 17 per cent on goods. A poor person whose income is as less as Rs200 per day is paying the same tax on a necessary commodity, as one whose daily income crosses Rs10,000.

There is no federal tax on agriculture. In 1997, after pressure from the World Bank a modest provincial tax on agriculture was imposed. But only a few pay that tax. There is hardly any law enforcement on those who evade taxes, and interestingly some laws also protect the rich. According to Shabbar Zaidi (former FBR chairman), under a law made in 1990, no one can question the transfer of money: “business men and politicians channel billions of rupees through Dubai back to Pakistan, no one questions”.

Pakistan’s economy can be fixed. Initially, three steps can be taken: (a) make Pakistan energy sufficient; (2) reduce the import bill; and (3) increase the tax base. The problem with Pakistan is that [some of the] people are wealthier than the state. Bold decisions against tax evaders can work wonders. Legislation to include the rich in the tax net can be proposed.

Pakistan is bestowed with immense alternate energy resources. These can be utilized for power generation. The people of Pakistan pay billions of rupees in zakat; they can also pay tax. Those who spend millions on real estate can also invest in industry. ‘Made in Pakistan’ should be promoted as a motto and a slogan. But the question is: do we have the intent to steer the country out of trouble?

The writer is a research analyst at the Institute of Regional Studies, Islamabad.