The following article, “IMF and Pakistan: Alternative Solutions for Pakistan“, is written by Quratulain Babar, a student of Sir Syed Kazim Ali. Moreover, the article is written on the same pattern, taught by Sir to his students, scoring the highest marks in compulsory subjects for years. Sir Kazim has uploaded his students’ solved past paper questions so other thousands of aspirants can understand how to crack a topic or question, how to write relevantly, what coherence is, and how to include and connect ideas, opinions, and suggestions to score the maximum.
Pakistan’s reliance on the IMF loans only brings misery to the state’s shoulders. However, this appalling state can be averted by revamping the tax net, encouraging domestic industry, sponsoring micro-financing, and devising digitalization in the country.
2- What is Pakistan’s current situation with the IMF?
3- Comprehending the repercussions of the IMF deals on Pakistan
- ✓The depreciation of rupee value
- ✓High inflation rate in the country
- ✓Increase in the country’s debt burden
- ✓The destabilization of the industry and market of the country
- ✓Meagre public incentives by the country’s government
4- What Alternative Options does Pakistan have for its Financial Existence?
- ✓To revamp the tax net of the country
- ✓To promote Pakistan’s domestic industry and the agriculture sector
- ✓To sponsor micro-financing at the government level
- ✓To inculcate institutional accountability in the system
- ✓To diversify the country’s export goods
5- Critical analysis
Answer to the Question
In the contemporary age of globalization, economic luxury can only be achieved if a country’s foreign account reserves are affluent enough to trade with other states. Unfortunately, Pakistan’s foreign account deficit, Gross Domestic Product (GDP) growth rate, present financial guidelines, and revenue generation claim its dilapidated economic condition. To restore its economy and trade, Pakistan heavily relies on the International Monetary Fund (IMF), which requires multiple conditions, such as intensification of energy tariffs and taxes, privatization of industries, and suspension of public subsidies and government spending on non-development programs. Nonetheless, the country’s reliance on IMF loans only brings misery to the state’s shoulders because of the non-reliable economic policies, lack of political will, and the culture of corruption in the country. However, this abysmal situation can be averted by revamping the tax net, promoting domestic industry, sponsoring micro-financing, and stimulating corruption-free administrative services through digitalization.
The Current Situation of Pakistan with the IMF
At present, Pakistan is in bilateral talks with the IMF concerning loans. The country is trying to secure a place on the IMF’s executive board for the approval of Staff Level Agreement (SLA) and disbursement of $700 million. The $700 million fund is the second tranche of thebailout the IMF signed with the country in June this year. In this regard, Pakistani authorities are working proactively to address the Fund’s concerns regarding potential slippages during the remaining period of the nine-month programme. For example, a report says that Pakistan has suggested some backup measures, including the imposition of a fixed tax on retailers from January to cover all fiscal slippages due to the potential shortfall in the targeted import and other tax revenues.
The IMF and Pakistan: A Topsy-turvy Ride
It is pertinent to understand the relationship between the IMF and Pakistanand its effects on the country. For this purpose, understanding the importance of an IMF deal for the shrinking economy is a chief concern in understanding the country’s relationship with the Fund. To illustrate, if the cash-strapped state faces an acute external account deficit, it cannot trade with any neighbouring country and in the global market. As a result, the government failed to purchase industrial goods, food commodities, and energy products, ultimately leading the state towards another financial catastrophe. Further, appraising Pakistan’s current trade account deficit, the repeated conditional bailout packages from IMF over the last 62 years have harshly impacted its highly import-dependent economy. The country’s real estate market, industrial units, and purchasing power parity have confronted several challenges under the demands of the IMF, such as imposing high taxes and interest rates on raw materials and construction merchandise. Moreover, the previous IMF programs to stabilize the country’s macroeconomics through fiscal consolidation, industrial privatization, fewer public incentives, and a market-determined exchange rate system have abetted inflation and unemployment surges. Thus, these IMF programs, on a large scale, have depreciated the rupee value, increased the debt burden, and destabilized the country’s market, which has resulted in the advancement of social unrest and political chaos.
What Alternative Options Does Pakistan Have for its Financial Existence?
Moving further, Pakistan’s economy is in a tailspin, and several options could be availed to boost the country’s economic sector.
To Revamp the Tax Net of the Country
First, an overhaul of the tax system is the need of the hour. In this regard, several endeavours at the government level are already working in the country, for example, the Track and Trace System and the National Accountability Bureau (NAB). However, their efficiency could be better, as evidenced by the country’s dilapidated tax system. According to the Economic Survey of Pakistan 2022, “Out of the 220 million populaces of the country, only 2 per cent are taxpayers.” Therefore, Pakistan should augment the efficiency and scope of these organizations to avoid tax evasion from real estate, domestic industry, private business, and, above all, educational arrangements. So, simplifying the tax policies and minimizing the tax rate while increasing the tax net should be the dogmata of the government to bolster the economy. Moreover, inducing high tariffs and taxes on importing unnecessary and luxurious goods would uplift Pakistan’s local industry and economy.
To Promote Pakistan’s Energy, Industrial, and Agricultural Sector
Next, Pakistan’s asymmetrical demand-to-supply power ratio needs to be fixed, which has created fuss for the economic quarter. Nevertheless, instrumenting prudent strategies to attain energy through local and renewable resources, procuring machinery for discovering and extracting natural resources, and producing clean energy rather than importing oil and gas would strengthen the economy in the long run. Additionally, Pakistan’s agriculture sector also needs reform to reinforce the economy. For example, advanced seed fertilizers and agronomic technology should be procured instead of trade in wheat and food products to elevate food production and satisfy the populace’s demand. Further, in this due season, Pakistan must shift its focus on industry by inaugurating new industrial zones and economic corridors, installing new IT markets, and manufacturing transport goods to stride towards a sustainable economy.
To Support Microfinancing at the Government Level
Another option to stabilize the economy is promoting micro-financing schemes. Currently, there is a total of 34 banks providing financial assistance to petty business owners in Pakistan. However, allotting financial loans at low-interest rates to unemployed masses with no monetary security is meagre. Thus, the government should work to assist low-income businesses through micro-financing. So, it would lessen the unemployment rate and improve the tax net and, ultimately, the economy’s growth.
To Inculcate Institutional Accountability in the System
Furthermore, rampant corruption in Pakistan must be contained. Undoubtedly, the economy has not faced more disadvantages from any other plan or organization than the unabated corruption at the government level in its 75 years of history. It is like a malignant clot that can jeopardize the capacity and efficiency of all departments and inflict the country’s government with misery. Veritably, as per the report of Transparency International, Pakistan’s administrative services, commerce and trade sector, development projects, police department, and judiciary have their hands in corrupt practices. Thus, the government must ponder the strategic solutions to counter this menace. The best way is digitalization, as technological monitoring is complex to tamper with, accompanied by a stable, autonomous, and powerful bureaucracy that would ensure transparent payments, halt corrupt practices, and uplift the economy.
To Diversify the Country’s Export Goods
Furthermore, instead of depending on the export of raw materials, Pakistan needs to diversify its exports. For instance, securing more capital is evident from the export policies of China, Bangladesh, and India. Indeed, these states focus more on exporting final products than trading raw materials. Despite producing colossal crude industrial materials, Pakistan is taking scanty advantage of them. The country should adapt to the changing global trends and export readymade yields such as garments, rugs, carpets, sports goods, and leather products. Hence, Pakistan must diversify its exports, which would benefit the home-grown industry and native business.
In a critical diagnosis, Pakistan’s intense dependency on IMF has created an unending vicious cycle of loan payment and retaking loans to support the shabby economy of the country. Upon analysis, the IMF program provides a short-term, immediate solution to Pakistan’s bankrupt budget. Consequently, its perpetual insinuations on the economy, industry, and public sectors have stagnated economic growth and indulged the country into unrelenting debt. Further, to scrutinize the real-time scenario, the present political instability, the absence of a discreet financial program, and fiscal constraints have rubbed salt in the wounds of the IMF-dependent country. Thus, to rejuvenate the economy, Pakistan needs prudent economic policies and reforms at both the structural and functional levels of the government.
To conclude, the present dwindling state of the economy and acute account deficiency has become problematic for the country to carry out its trade activities smoothly. Moreover, countering the account deficit on an immediate basis causes the government to knock on the door of the IMF and accept all its conditions, which in the long term would only add injury to the already derelict economic situation. Nonetheless, properly managing the tax system, digitalizing the public offices and governmental dealings, developing economic corridors, and, last but not least, producing and exporting high-value manufactured goods rather than raw materials would revitalize the economy.
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