Daily Times

A $350 billion economy, skyrocketing inflation, and a sharp fall in reserves have sent Pakistan plummeting into a rapidly developing economic crisis that it may not be able to recover. Indeed, many economic analysts around the globe speculate that Pakistan is destined to follow Sri Lanka’s tragic descent into debt default.

In the past year alone, the country’s reserves have shrunk to less than half their size while the rupee has lost 24% of its value against the dollar. Food and fuel prices continue to rise, leaving the salaried class vulnerable at a time when they should be protected by the state.

The IMF’s 23rd bailout package for the country is still stuck in the review stages as policymakers scramble to meet the conditional targets underlined in its package. The international community has already pledged $9 billion to help Pakistan grapple with the aftermath of its devastating floods just last year but it needs a lot more to climb out of this crisis. If Pakistan’s inflationary pressures go unchecked, inflation could soar even higher.

The government must introduce overdue structural reforms to encourage economic activity and eventually move away from its reliance on imports. A trade liberalisation policy through direct technical assistance to the export sector is the country’s best bet at revitalising its exports.

Large-scale tax reform is equally crucial; Pakistan’s tax-collection rates at the moment aren’t even sufficient for the purposes of debt reservicing. Sales tax continues to represent the largest contribution to the country’s overall tax revenue whereas the agricultural sector, which contributes more than 20% of the national GDP, is barely taxed. Many individuals with an income greater than the minimum exemption level never file their taxes at all; the costs of this are instead passed onto the poor through indirect taxes.

There have been no organized attempts to widen the tax base because this would mean taxing politically sensitive constituencies. Pakistan’s policymakers need to take a cold look at themselves and question whether their rich friends are worth a complete breakdown of the economy. Without this critical reassessment, the country may never get back on its feet. *