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1- Introduction
- Economy is one of the most critical player in a country
- Pakistan, like other developing countries, is struggling with its unstable economy
- The country can reinvigorate its economy by taking some pragmatic steps
2- Current situation of Pakistan’s economy
Currently, Pakistan is facing a serious threat of economic default as its foreign exchange reserves are depleting exponentially
3- How can Pakistan reinvigorate its economy
- Investing in human capital
- Case in point: human capital development policy of Singapore
- Creating an equity-based tax policy
- Case in point: The tax system of China
- Increasing competition among local producers
- Case in point: competition with foreign products can improve the quality of local products and save them from extinction, Harvard Business Review
- Developing small-scale industries
- Case in point: great contribution of small-scale industries in the economy of India, University of Wollongong Research Centre
- Privatising state owned enterprises
- Case in point: privatisation of energy sector in Denmark
- Promote digitalisation
- Case in point: The digital economy has the potential to radically change the social environment and economic activities of Asia, Asian Development Bank
4- Critical Analysis
5- Conclusion
Introduction
The economy is one of the most critical players in a country that can even make or break its foundations. If a country’s economy is flourishing, then the whole situation of its international image, society and politics start moving in a positive direction. The countries with the biggest economies, like the US, Japan, China and Russia, are ruling the world due to their economic might. However, Pakistan, like other developing countries, has been struggling with its unstable economy since its inception. Moreover, the reliance of the country on foreign assistance has proved to be a curse as the country has never tried to strengthen its economy without the blessing of the West. Nonetheless, the country can still reinvigorate its economy to achieve the dream of positive growth by taking some pragmatic steps, such as investment in human capital to incorporate the skills important for economic prosperity, digitalisation of the economy, and privatisation of state-owned enterprises. Also, the development of small-scale industries should also be encouraged to empower the local economy. Moreover, equity-based tax policy should be generated to avoid the exploitation of poor people and collecting much amount from the elites. Thus, if these measures are taken seriously, Pakistan will be able to revive its economy. This article endeavoured to explain the measures which Pakistan can take to reinvigorate its economy.
Current situation of Pakistan’s economy
Currently, Pakistan is facing a serious threat of economic default as its foreign exchange reserves are depleting exponentially. In addition, The exports of the country fell nine per cent since last July. Moving further, the destructive floods of last summer have also caused much damage to the already staggering economy. Consequently, these floods have wiped out crops on hundreds of acres of land, which has made the country spend $2 billion on the import of crops. To make the situation even worse, the trust of investors has also declined due to political instability in the country. Besides this, Pakistani currency is continuously getting weaker against the US dollar, and the former is at one of its highest points in history. To avoid this catastrophic situation of default, Pakistan, even after accepting the threatening condition, is still looking towards the IMF to finalise the deal and restore its program to support the economy.
How Pakistan can reinvigorate its economy
- Investing in human capital
First, Pakistan should focus on developing its human capital so that the skills and knowledge of people can help the country’s economy to flourish. Human capital allows a country’s economy to grow as qualitative education help promote innovation, social well-being, and increased productivity. An example of Singapore is worth mentioning here as the country transformed itself from low income to high income developed country by spending much on human capital. Its main focus was on aligning educational policy with national and economic policy. In the case of Pakistan, the country should not only focus on providing degrees, but it should also inculcate the up to date skills. Higher education council should be reformed according to the modern era needs.
Additionally, for longer sustainable growth, the country should transfer the funds of short-term projects to the area of human development. Also, the government should make investments in the health sector to increase life expectancy. Furthermore, the government should also set up vocational training institutes in smaller cities so that more people can access them. Hence, if the government will focus on the development of human capital, it will be able to revive its economy.
- Developing Equity based tax policy
Second, the government should also devise an equity-based tax system so everyone can contribute according to their capacity. For example, China’s tax rate is divided into seven levels according to monthly income, with the highest level being 45 per-cent and the lowest being three per-cent. Unfortunately, Pakistan’s current tax system is highly flawed, which has provided a space for the elite to do tax evasion and exploit poor people. For this, Pakistan should reduce the tax on the basic necessities of life and increase taxes on luxuries to ensure the maximum contribution of the rich class. Moreover, heavy taxes should also be applied on imported products to promote the use of local commodities. Further, policies should also be devised to expand the tax net and remove all the loopholes that can provide cover to tax evaders. So, if these measures are taken seriously, the government will be able to stabilise its economy.
- Increasing competition among local producers
Third, the competition among the producers should also be increased so that the domestic producers can focus on reducing the prices and increasing the quality of their products. There should be a conducive environment for businesses so that people can have access to a vast number of products. Consequently, the variety of items will compel the local manufacturers to produce low-price and high-quality products. According to the Harvard Business Review, a conducive business environment and competition with foreign items can improve the quality of local products and save them from extinction. In the case of Pakistan, this will not only save the domestic industries from extinction but also lead towards a decrement in imports as people will start preferring local products. Thus, these pragmatic steps can help Pakistan to move up the ladder of economic development.
- Developing small-scale industries
Moreover, the government should also develop small-scale industries which can play a greater role in economic development. Setting up these industries will help create enormous jobs and quality products worthy of export. They will also help the country reduce issues like slums, poverty, pollution etc. As mentioned by Wollongong Research Centre, the contribution of small-scale industries to the economy of India has played a major role in flourishing economy. For this purpose, the Pakistani government should provide funding and incentives for supporting these industries, and proper banking channels should be established to ensure transparency. Besides this, terms for starting the business should be easier so that maximum participation can be ensured. In conclusion, setting up small-scale industries will help the government to uplift its economy.
- Privatisation of state-owned enterprises
Furthermore, the privatisation of state-owned enterprises can prove to be very beneficial in terms of the economy. As privatising state-owned enterprises will reduce the stress on public finances and help reduce the fiscal deficit. In Denmark, the transmission grid is fully publicly owned, and most wind farms are community-owned, which is helping its government to focus on important areas. So, Pakistan’s government should try to locate the enterprises which are causing more stress on resources, suffering from losses, and do not have sensitive data about the state. After the analysis, the government should make these enterprises available for privatisation. Moreover, the government should also try to outsource some of the departments if the enterprise cannot be privatised fully. In summary, the privatisation of state-owned enterprises is the right step towards the revival of the economy.
- Promote digitalisation
Last but not least, the government should also focus on the digitalisation of its economy to ensure positive growth. By adopting the practices of a digital economy, the country will be able to drive innovation and fuel job opportunities. According to Asian Development Bank, The digital economy has the potential to radically change the social environment and can increase the economic growth of Asia. In addition, automation will revolutionise the tax system and ensure a maximum contribution. Most people try to avoid taxes because of the lengthy and difficult procedures, but technology will help them to pay their taxes with their smartphones. Moreover, there should be a complete system of information about the use of tax money so that the trust of people becomes firm in the process. Consequently, this will not increase the tax net, but also reduce the chances of corruption. In closing, if the government will adopt digitalisation, economic growth will move towards positivity.
Critical Analysis
In a sagacious diagnosis, it is not wrong to say that Pakistan is going through the most difficult stage because of the threat of default. It is a very unfortunate situation that, like in previous decades, the country is still relying on foreign aid for its revival. The successive governments have done nothing to take it out of the quagmire of economic instability. Rather than building its own capacity to avoid this catastrophic situation, the government is ready to give up some of its sovereignty for financial assistance. There are many reform programs available, which can make Pakistan self-sufficient, but the lack of political will and foresight have always drowned these programs in the ocean. However, we have much potential in our economy, and there is a hope that the next governments will surely take realistic steps for its revival and Pakistan will move on the road of economic development.
Conclusion
In a nutshell, Pakistan is facing economic downfall due to its mistakes. In recent times, it has been suffering from the serious threat of default as its foreign reserves are drowning. Fortunately, for several past months, the country has been avoiding this destructive situation, but it is not enough as the country should take some realistic steps to energise its economy. Some measures, such as digitalisation of the economy, privatisation of state-owned enterprises, increasing the tax net, and development of small-scale industries, can be done to realise the dream of economic prosperity. Also, the government should invest in the development of human capital to set the basis for productive growth. Thus, despite the difficulties, some small steps can help Pakistan to reinvigorate its economy.
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