THE current economic situation in Pakistan is a challenge for the government, which faced a range of issues when it assumed power last year. The problem included dwindling foreign exchange reserves, the exchange rate parity, a huge fiscal deficit and a negative trade balance. Exports were stagnant while imports remained high, putting pressure on the exchange rate.

The government took some corrective measures such as a re-alignment of the exchange rate with market equilibrium, an increase in interest rates to reduce demand-related pressures (a tighter monetary policy), emphasis on increasing tax collection (including a tax amnesty scheme) and seeking funding from friendly countries to support debt repayments and foreign currency reserves.

The policies gave some positive results. The current account deficit in the first six months of 2019 is down by 52 per cent compared to the first six months of 2018. However, there have been certain negative implications as well. The economy has started to slow down, businessmen (mainly those in the vast undocumented sector) have taken a very cautious approach, the cost of living has increased (average CPI up from 3.9pc in FY18 to 7.3pc during FY19) resulting in greater pressures on the already burdened middle and lower classes. Foreign direct investment has declined, and the Pakistan Stock Exchange has remained under pressure.

These problems can only be resolved through deep-routed structural changes in the economy. Leakages need to be plugged, the undocumented sector has to be brought into the organised setup, government departments need to be more efficient with impartial enforcement practices, spending should be focused on the productive sectors of the economy, exports need a significant push (through capacity building, value addition and research practices), subsidies should be minimised (if not entirely removed), and the confidence of the business community and foreign investors should be gained. These steps will sooner or later have a positive impact on the economy.

Afnan Kadir
Karachi

Published in Dawn, September 19th, 2019