Reinvigorating Pakistan’s Economy

Reinvigorating Pakistan's Economy

The following article, “Reinvigorating Pakistan’s Economy“, is written by Fahad Farooq, 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.

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Outline

1- Introduction

  • ✓ The economy is one of the most critical players 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 faces a serious threat of economic default as its foreign exchange reserves are depleting exponentially.

3- Pakistan can reinvigorate its economy by

  • 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
  • Promoting digitalisation
    • Case in point: Digital economy has the potential to radically change the social environment and economic activities of Asia, Asian Development Bank

4- Critical Analysis

5- Conclusion

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Answer to the Question

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 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, rule the world due to their economic might. However, like other developing countries, Pakistan has been struggling with its unstable economy since its inception. Moreover, the country’s reliance 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, developing small-scale industries should be encouraged to empower the local economy. Moreover, an equity-based tax policy should be generated to avoid exploiting poor people and collecting small amounts from the elites. Thus, if these measures are taken seriously, Pakistan can revive its economy. This article explores the measures Pakistan can take to reinvigorate its economy.

Current situation of Pakistan’s economy

Pakistanis face a serious threat of economic default as its foreign exchange reserves are depleting exponentially. In addition, the country’s exports have fallen by 9 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 caused the country to spend $2 billion on the import of crops. To make the situation even worse, investors’ trust has also declined due to political instability in the country. Besides this, Pakistani currency is continuously weakening against the US dollar, at one of the highest points in history. To avoid this catastrophic default situation, 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. 

Pakistan can reinvigorate its economy by

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 flourish. Human capital allows a country’s economy to grow as qualitative education helps promote innovation, social well-being, and increased productivity. An example of Singapore is worth mentioning here as it transformed itself from a low-income to a high-income developed country by spending a lot on human capital. Its primary focus was aligning the educational policy with the national economic policy. In the case of Pakistan, the country should not only focus on providing degrees to students but also teach them up-to-date skills. The higher education council should be reformed according to the needs of the modern era. 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 invest 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 focuses on developing 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 3 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 necessities of life and increase taxes on luxuries to ensure the maximum contribution of the rich class. Moreover, heavy taxes should also be applied to 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 cover tax evaders. So, if these measures are taken seriously, the government can 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 to a decrease in imports as people will start preferring local products. Thus, these pragmatic steps can help Pakistan move up the economic development ladder.

Developing small-scale industries

Moreover, the government should develop small-scale industries that can play a more significant 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 the Wollongong Research Centre, the contribution of small-scale industries to India’s economy has played a major role in its 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 to ensure maximum participation. In conclusion, setting up small-scale industries will help the government uplift its economy.

Privatising state-owned enterprises

Furthermore, the privatisation of state-owned enterprises can prove to be very beneficial in terms of the economy. Privatising the 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, helping its government focus on essential 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 try to outsource some departments if the enterprise cannot fully privatise. In summary, the privatisation of state-owned enterprises is the right step towards the revival of the economy.

Promoting digitalisation

The government should also focus on digitalising its economy to ensure positive growth. By adopting the practices of the digital economy, the country will be able to drive innovation and fuel job opportunities. According to the Asian Development Bank, the digital economy has the potential to change the social environment radically and can increase the economic growth of Asia. In addition, the automation will revolutionise the tax system and ensure maximum contribution. Most people try to avoid taxes because of the lengthy and difficult procedures, but technology will help them pay their taxes with smartphones. Moreover, there should be a complete system of information about the use of tax money so that people’s trust becomes firm in the process. Consequently, this will increase the tax net and reduce the chances of corruption. In closing, economic growth will be positive if the government adopts digitalisation.

Critical Analysis

In a rational diagnosis, it is not wrong to say that Pakistan is going through the most difficult stage because of the threat of default. It is unfortunate that, like previous decades, the country still relies on foreign aid for its revival. The successive governments have done nothing to remove it from the quagmire of economic instability. Rather than building their capacity to avoid this catastrophic situation, the government is ready to relinquish 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 successive 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. Recently, it has suffered from the severe threat of default as its foreign reserves are drowning. Fortunately, the country has been avoiding this destructive situation for several months, 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 human capital development to set the basis for productive growth. Thus, despite the difficulties, some small steps can help Pakistan reinvigorate its economy.

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