akistan has started another year with a bevy of medium- to long-term challenges. The elections scheduled in February are unlikely to result in significant changes if they continue to be described as rigged and not having provided an equal opportunity to parties.

The integrity of the democratic system in Pakistan is being tested by various factors. There are significant challenges to the citizens’ ability to elect their leaders and ensure their accountability. This year is expected to be just as eventful as the previous ones. More than 70 countries worldwide are holding elections in 2024. These include some of the largest economies — the USA, the UK, India, China and Taiwan — are among them. The outcomes can have significant domestic and global consequences.

Four years after the Covid-19 pandemic, Pakistan’s economy faces many challenges and uncertainties. The pandemic exposed and exacerbated the structural weaknesses and vulnerabilities in Pakistan’s financial system. Given the challenging conditions, the country has to seek external assistance to stabilise its economy. This has frequently entailed a heavy reliance on global lending institutions, such as the International Monetary Fund and friendly countries, such as China and Saudi Arabia.

We must recognise that the IMF offers member countries only a framework for building their fiscal policies and managing macroeconomic variables to achieve prosperity and resilience.

Country governments are responsible for defining priorities and choosing where to generate revenue from and how to spend it. In Pakistan, successive governments have failed to reform the tax collection system through which governments generate income for public expenditure.

During the first half of the current fiscal year, the salaried class was a significant contributor to income tax. They paid Rs 158 billion in taxes, 243 percent more than the tax contribution of the wealthiest subsidised exporters.

Salaried individuals paid Rs 264 billion in taxes during the previous year. According to the Federal Board of Revenue, the current trend suggests that their contribution will surpass Rs 300 billion this year. A considerable number of candidates vying for national and provincial assembly seats in the approaching elections have either yet to register or have failed to file income tax returns in the previous three years.

Given the need for external funding and the limited reserves, Pakistan continues to rely on the IMF. Policy errors and political instability could put this support at risk.

The interim government has failed to recover approximately Rs 95 billion from publicly owned power sector companies. Instead, it released Rs 131 billion without first deducting its receivables. We are also encountering difficulties in tackling the climate threat. Recent climate catastrophes have shown Pakistan’s vulnerability to severe weather events.

The lack of trust in the judicial system has compelled some investors to consider alternative options and invest overseas, where the law and order situation is favourable.

It is important to address the challenges faced by Pakistani women. The lack of adequate investment in the education sector and the long-term effects of childhood stunting have had a detrimental impact on economic growth. As global temperatures continue to rise, Pakistan will have a heightened responsibility to provide heat-resistant infrastructure to particularly vulnerable communities.

Policymakers need to acknowledge the interest of Saudi Arabia and other Gulf countries in investing in Pakistani assets. It is crucial to have competent individuals on the Pakistani side to effectively handle and execute financial transactions to bring these investments to fruition. The public sector in Pakistan is facing significant challenges in harnessing this opportunity.

To regain the trust of both domestic and foreign investors and pave the way for a gradual economic recovery, we must address the law-and-order situation and implement necessary judicial reforms to protect the rights of all individuals.

Moreover, there is a need to implement reforms that will significantly reduce tax exemptions and expand the tax base by increasing taxes on agriculture, property and retailers. The quality of public spending needs to improve to cause a reduction in distorting subsidies, ensure the financial sustainability of the energy sector and encourage greater private sector involvement in the management of state-owned enterprises.

Given the need for external funding, Pakistan continues to rely on the IMF. Policy errors and political instability could put this support at risk.

The writer is a senior lecturer in finance. He heads the business finance programme at the Birmingham City University, UK. He posts his opinions on X @HafizUsmanRana