Daily Times

A Year is lapsed for PTI that came into power first time with rhetoric to make a new Pakistan by brining corruption free good governance. If one may execute a quantitative analysis, economic indicators may be assumed as a tool of performance together with recovery figures through accountability and broadening of Tax Net. Good news is that the Current Account Deficit (CAD) and Trade Deficit (Twin Deficits) showing decreasing trend tremendously but slowing down of economy and fall in Gross Domestic Product (GDP) growth rate is a very bad news. Slow down of economy was an obvious outcome for import based economy which got affected due to huge devaluation of Pak Rupee when Exchange rate is set to free. Though it helped to bring down twin deficits but introduced double digit inflation crossing 10%. It compelled State Bank of Pakistan (SBP) to raise Discount Rate which further resulted businesses to become costly. In short, controlling twin deficit increased twin input costs of doing business i.e. Exchange Rate and Interest Rate. Besides these economic indicators as a result of tight monetary policy other quantitative parameters are not showing much movement towards any outcome due to the fact that corruption is so deep rooted that proving a corruption out of corrupt environment is giving the accountability institutions a big trouble. On the other side, despite of the fact that new FBR Chairman is determined towards documentation of economy for better tax collection, tax evaders are retaliating and trying to skip this fiscal measure taken by the government by way of different threats. Is this mean that the government is failed to bring any positive change into economic system of the country? Answer to this question is too early to conclude when government is trying to change import based consumer behaviour of the country. PTI preferred to get an International Monetary Fund (IMF) program not only to bring liquidity into Pakistan but for financial discipline through various monetary and fiscal measures including a strategy to undo Pakistan’s name from Grey List of Financial Action Task Force (FATF) by introducing Qualitative measures by strengthening regulatory bodies which will control Money Laundering and Terrorist Financing.

By increasing tax net and inflicting harsh measurers for the same government has opened another battle field with traders and retailers but in longer run when this segment of economy who do not pay proper tax become documented through CNIC condition and paying GST deducted to national exchequer, it will result in increasing tax collection which ultimately be used in paying debt servicing and financing of subsidies

On flag hosting ceremony on SBP building at 14th August, Governor SBP Mr. Reza Baqir hinted about the economy on right track and all possible measures to deal with economic emergency have been so far applied that means worst is over. He emphasizes present economic policies to be consistent so that the final outcome would be based on the effects of these reforms. He stated that these painful measures will get long-term economic growth which will benefit the low income and middle class. Prime Minister Imran Khan also quoted several times that soon the country will get out of economic troubles and he considers 6 months remaining for results to impact national exchequer, positively. Question arises that if Lower Income and Middle Class are happy with the pain inflicted by tough economic measures. Simple reply to this query is NO. By controlling Twin Deficit, Khan’s government is ready for GDP growth rate to slow down from 5.75% to 2.5% and inflation to rise as stated in IMF report for current fiscal year. As Economy from last couple of decades has become import based where local manufacturers are discouraged and easy money is earned at which even tax were not submitted to national exchequer, twin input cost i.e. Devaluation and Interest rate hike resulted an economic slow-down whereas government efforts to increase tax net making lock down calls from traders and middleman. This scenario is triggering economic chaos everywhere where no one can determine exact future of one’s economic activity therefore unemployment is an ultimate outcome affecting Lower class house hold income, value of money and purchasing power. It is an apparent result of IMF conditions imposed over Pakistan for next 36 months. However, if government strict measures for financial discipline may successfully be installed it will become prosperity for lower income class in longer run and burden will be shifted to Upper Class in shape of direct taxation.

Government is committed towards achieving the toughest target imposed not only by IMF but itself for prosperous Pakistan. For said reason the government has set some goals which are set to be short term and long term. In short run Twin Deficits are controlled which increased twin cost of production specially for importers as explained above but it will help local industries to grow. Initially, import based GDP will fall and then a pattern will be set where only essential imports will be allowed. Afterwards Export based GDP will increase and import substitution for local consumption will become future of the country that will save foreign exchange. For said reason government is trying to improve efficiency of quality control units. By increasing tax net and inflicting harsh measurers for the same government has opened another battle field with traders and retailers but in longer run when this segment of economy who do not pay proper tax become documented through CNIC condition and paying GST deducted to national exchequer, it will result in increasing tax collection which ultimately be used in paying debt servicing and financing of subsidies. Soon when tax net will increase it will bring stability in economy, tax rates will fall and indirect taxation will be replaced with direct taxation. This long term scenario seems very optimistic though when we have a border situation at Line of Control where military conflict with neighbours is very much possible inflicting pain to already downturned economy, spending on international relations for Kashmir Issue is set to increase, sword of FATF black list scenario on our head and non cooperative opposition is determined for toppling the government. Above all US-China Trade war has reduced the global economic activities due to which business opportunities are on declining trend. However it is said to be true that when a nation is lead by a non corrupt leader there would be a positive outcome at the end of the day. Pakistan’s success on international front is one example where after 50 years we are able to voice for Kashmir at United Nations (UN) and getting it recognized internationally that India is an oppressor, occupying Kashmir against the resolutions of UN.

The writer is Corporate Finance Specialist and a Chartered Banker (UK)