THE newly-appointed finance minister faces two critical challenges to revive the national economy. One of them is the external trade imbalance; the exports cover just 50 per cent of the imports, resulting in a large trade deficit that is at the root of the country’s external account difficulties.

It is not possible to push up exports in a big way in the short term owing to insufficient exportable surplus of farm and manufacturing products. Agriculture has been underperforming, while the manufacturing sector faces capacity constraint with very low investment.

Thus, the focus has to be on compressing imports of luxury/unnecessary foreign items as well as all such goods that are being produced locally. A saving of $8-10 billion can be achieved in dollar demand under this head alone.

The second challenge is the narrow tax base, as an increase of about 50pc is required in tax collection to balance the budget. Can the finance minister expand the tax base by bringing tax-evaders, including the powerful groups, into the tax net?

According to a study based on data available from different sources, about five million individuals should be paying income tax, but less than half are actually paying.

Pruning of the bloated current expenditure of the government can bring in savings.

Further, cash doleouts under ‘Ehsaas’ programme, shelter homes, free food schemes, subsidy for Utility Stores, etc., are unproductive schemes and not a prudent way of addressing welfare needs.

The finance minister needs to overhaul the policies and set a clear direction of the national economy. It requires bold decisions from the top beyond political sensibilities considering the presence of influential groups that are roadblocks to any semblance of reforms.

The early phase is important for the finance minister to make people feel the impact. People will be prepared to digest difficult and painful measures if they see a silver lining beyond the immediate.

Shoaib A. Majeed
Karachi

Published in Dawn, April 30th, 2021