The economy is going through a tough time. Last week, the country received the second tranche of $1 billion from the International Monetary Fund (IMF) under its ongoing $7 billion loan program.
This has given some relief to the country’s balance of payments. However, problems remain. In April, Pakistan imported goods worth $5.5 billion but exported only $2.14 billion. This growing trade gap is worrying. If tensions with India rise again and the ceasefire breaks, managing the trade deficit in May and June will become even harder.
The government may already have a backup plan to deal with the situation in the short term. But the real worry is what happens in the next financial year. A new challenge is also emerging from the United States. A proposed tax of 5pc on money sent abroad could affect the $3.5 billion in yearly remittances that Pakistan receives from overseas Pakistanis in the US.
If this tax becomes law by July 4, it may reduce the amount of money sent back home. Pakistan must try to get an exemption from this tax, while also working to send skilled workers to other countries besides the usual fivelike Saudi Arabia, the UAE, UK, US, and GCC nations.
On the export side, lower inflation and interest rate cuts may help reduce production costs. This could improve exports slightly, but the trade gap may not be fixed.
Imports have jumped sharply, especially of consumer goods and industrial materials, as restrictions have eased and domestic demand has grown. For now, maintaining a current account surplus will be very difficult.
The government is also thinking about lowering import taxes, which could invite more foreign competition. To solve these problems, the country needs strong political unity and deep reforms in its tax system.
The government must act firmly to stop tax evasion and widen the tax base. At the same time, it must create a friendly environment to attract large-scale investment, especially from Gulf countries. *