Daily Times

The economy hasn’t seen a good day since the prime minister assumed office. At first there weren’t enough revenues in the state treasury because the last government had robbed it to fill their own pockets. After that the government was reluctant to reach out to the IMF because it didn’t want to do something it had spent years criticizing. At that time the government so absurdly believed that seeking help from friendly countries will be enough to put the economy back on track. And during this period of delaying the inevitable they brought the economy down to a new low with the growth rate around 3.3% and macro economic indicators like inflation and unemployment surging up.

And now after receiving the IMF bailout package the economy has still stumbled even further down. The growth rate for FY 2019-20 is predicted to be at its lowest around 2.1%. the inflation has skyrocketed to 13% from 7.3% in FY 2018-19. Unemployment has risen to 6.2% in this FY compared toa 5.2% in the previous one. The policy rate has continued its upward trajectory pushing the inflation along with it further. According to a state bank report, it is stated that a 1% increase in the policy rate leads to 0.7% increase in the inflation rate.

The inflation faced by Pakistan is cost push inflation resulting from higher cost of production. Therefore the shocks of such inflation harms the producers, consumers and the economy as a whole. It restrains the production and consumption leading to a lower aggregate demand and resulting in the reduction of our already shrunken GDP. And in such scenario the PTI minister Ali Amin Gangapur so confidently stated that ” inflation is good for the country as it benefits the farmers.”

For improving the health of the economy much focus needs to be placed on attracting FDI and stimulating the exports. As they will result into macroeconomic stability by improving foreign exchange reserves and current account, raising employment and improving the GDP

Many economists argue that in order to check the health of the economy one must focus on the happiness index rather than GNP. In the current state of affairs with the highest unemployment and inflation rates especially food inflation, pushing more people into the vicious circle of poverty and absolutely low standard of living one can easily conclude that we have dipped numerous notches down the happiness index as well.

In such times the prime ministers promisethat the next year will be better seems vague because no actual work can be seen to put his glorious plans into action. There is absolutely no improvement in attracting the foreign direct investment (FDI). There isn’t much improvement in our trade deficit the exports are still low. Additionally, the much boasted news that the current account is now in surplus is also not much to be happy about if one could focus on the underlying cause. The current account hasn’t boomed into surplusdue to any significant improvement in the trade deficit. Instead much of it is owed to the accumulation of hot money inflows. These inflows are short term and are certainly not reliable because they seek high interest rates and therefore can’t be sustained for longer periods. Moreover, the State Bank, in order to keep attracting hot money inflows is keeping its policy rate at its highest, not caring about the domestic damage its causing.

In addition to the Trade Deficit the government also faces a Trust Deficit. The lack of trust of people in the government pose many serious consequences for the economy. Due to the trust deficit problems like lack of savings, investment, tax payment and brain drain etc. emerge. These private savings and investment are extremely essential for the economic well being. They create revenues and employment which are crucial for the financially strained economy.

In order to finance its revenues, borrowing from the State bank isn’t an option since it leads to further inflation and crowds out borrowing for private investment. Therefore, the focus of the government is on the only viable option that is taxation. The target tax collection for FY2019-20 is set to be RS 5.5 trillion, 26% higher than the last Fiscal Year. For such huge sum the government must deliver something yet all it seems to be doing is burdening the common man even further. Due to strict tax laws and unfavorable tax regime the investment especially FDI is directly affected. Similarly owing to the above mentioned factors the performance of manufacturing, industry and now even agriculture sectors has dwindled.

The government is in dire need of broadening the tax base. Presently on the same base people have to pay numerous different taxes. This harms the purchasing power and results in various socio economic consequences. An efficiently designed broader tax base is the need of the day as it will effectively raise revenues and minimize the socio economic consequences.

Similarly, for improving the health of the economy much focus needs to be placed on attracting FDI and stimulating the exports. As they will result into macro economic stability by improving foreign exchange reserves and current account, raising employment and improving the GDP. It is evident that with the current level of action and policies the future will remain bleak with wave after wave of pessimism crashing against the economy. But if the much needed actions are effectively put in place we can foresee the economy getting back on track.

The writer is an economist, environmentalist, a feminist, an animal rights activist and a poet