Falak
Super Star Pakistani
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1. Pakistan's economic growth rate fell from 5.5% in FY18 to 3.3% in FY19
Budget documents peg growth for FY20 even lower at 2.4% (Pakistan's fiscal year: July- June)
2. Pakistani rupee has lost a fifth of its value against the dollar since the beginning of this fiscal year
3. 13% inflation expected over the next 12 months, reaching a 10-year-high
Fiscal indicators witnessed deterioration during first nine months of current fiscal year
FISCAL DEFICIT
7.1% of GDP
(FY20, highest in last 7 years)
GROSS PUBLIC DEBT/GDP
77.6% (2019-20)
FDI
DURING JULY-APRIL FY19
Foreign direct investment dropped 51.7%
Foreign private investment declined 64.3%
IN DIRE STRAITS
Pakistan is in the midst of a crisis. The growth rate has almost halved, the balance of payments is in poor shape, the Pakistani rupee has depreciated significantly, and external debt is large and rising, according to UNCTAD’s Trade and Development Report 2019. While support from China and Saudi Arabia and a large IMF loan have helped address the immediate problem, the crisis has not been resolved.
MAIN ISSUES
1. Ever-increasing debt both domestic and international. Islamabad continues to borrow to repay past debt. In July it signed yet another deal with IMF for a bailout worth $6 billion
2. Ballooning public deficits and losses in state-owned companies
3. Increase in trade deficit and keeping the exchange rate constant
4. Rising inflation, growth skewed toward consumption, low investment and job creation
5. Only 1% of Pakistanis pay taxes. The country has one of the lowest tax-to-GDP ratios (11%) in the world
6. Imran Khan vowed to curb tax evasion and graft before coming to power but little has been done so far by the administration
7. A recent tax amnesty scheme implemented by the government failed to kick off
8. Not only has Khan’s government failed to increase revenue flows, it has also been unable to cut non developmental expenditures
9. Post debt servicing, the biggest source ..
10. The funds the military receives from the state budget is in addition to the revenue it gets from its large business operations. It recently moved into the mining,and oil and gas exploration sectors, some of which were facilitated by Khan’s government. Reports peg the size of Pakistani army’s commercial empire at $100 billion, which covers banking, cement and real estate sectors.
@Recently Active Users
For decades, the Pakistani authorities have been unable to establish effective tax collection practices. Currently, only one percent of Pakistanis pay their taxes and the country has one of the lowest tax-to-GDP ratios in the world.
Successive governments have avoided imposing stricter controls because they have been staffed by members of the same elites that are actively evading taxes. They are able to do so not only because of government inaction but also because of widespread corruption. In fact, it is cheaper for them to bribe than to pay their dues.
Thus, the tax burden in Pakistan falls overwhelmingly on the poor who pay in various indirect ways and who already struggle to make ends meet. Currently, a third of the nation is living below the poverty line.
Khan promised to crack down on tax evasion and corruption before coming to power but little has been done so far. He has not introduced any measures to address corruption in the ranks of his own party, for example. Recently it emerged that a minister in Khan's cabinet had evaded paying taxes for years by transferring his luxury properties to one of his employees, but no action has been taken against him so far.
Given this selective justice, it is hardly surprising that a recent tax amnesty scheme implemented by the government in which tax debt is forgiven in exchange for a fee failedto kick off.
While Khan's government is failing to raise revenue flows it is also failing to cut non-developmental expenditures.
The biggest source of such spending after debt-servicing is the military which officially receives around 18 and 23 percent of the budget every year.
The funds the military receives from the state budget is in addition to the revenue it gets from its large business operations, which include over 50 commercial entities generating some $1.5bn annually. It just recently moved into the mining and oil and gas exploration sector, some of which was facilitated by Khan's government.
So despite being rich itself, the army continues to be a burden on the Pakistani economy and to get preferential treatment. At this point, there are no signs that this would change under the current government.
Khan announced the formation of a new committee called the National Development Council to oversee Pakistan's economic growth strategy. Apart from a number of ministers with relevant portfolios and key government officials, the army chief is also a member of the council, which indicates that the military will continue to be part of any decision-making on the economy in the future.
A few days before the annual budget was submitted to parliament, Khan also announcedthat the military was going to take a voluntary budget cut, attributing it specifically to the economic turmoil. However, when the details of the budget were made public, it turned out that the allocation to the army saw an increase of 17.6 percent from last year. As a result, some have speculated that the earlier announcement was just a PR exercise, aimed to fool Pakistan's international creditors, like the IMF, who have urged the government to cut down its non-development expenditures.
Despite this persistent pressure from outside entities, defence spending continues to be prioritised. The official justification for this policy is always the perceived threat from neighbouring countries, which in some ways the military itself perpetuates.
Both Afghanistan and India are regularly identified as sources of threat to the national security in local mainstream media, yet the fact that militant groups targeting these two countries are allowed to organise on Pakistani territory is often overlooked.
Their presence maintains low-intensity conflicts with neighbouring countries, which conveniently justifies increased military spending to protect Pakistan from "foreign enemies".
Thus Pakistan appears to be stuck in a vicious cycle of accommodating the interests of the army and the powerful economic elites which cripple its economy and force it to continue borrowing from international creditors, sinking further into debt and inching closer to full economic collapse.
At this point, those in power and those who enjoy economic privileges must realise that this status quo is unsustainable. The only way out is to implement a just tax system along with a cut or at least a freeze on the ever-increasing military budget.
If Pakistan is to avoid the looming economic disaster, it must revise current spending and prioritise expenditures that will actually generate social and economic development and uplift the poor, not just the civilian and military elites.
Budget documents peg growth for FY20 even lower at 2.4% (Pakistan's fiscal year: July- June)
2. Pakistani rupee has lost a fifth of its value against the dollar since the beginning of this fiscal year
3. 13% inflation expected over the next 12 months, reaching a 10-year-high
Fiscal indicators witnessed deterioration during first nine months of current fiscal year
FISCAL DEFICIT
7.1% of GDP
(FY20, highest in last 7 years)
GROSS PUBLIC DEBT/GDP
77.6% (2019-20)
FDI
DURING JULY-APRIL FY19
Foreign direct investment dropped 51.7%
Foreign private investment declined 64.3%
IN DIRE STRAITS
Pakistan is in the midst of a crisis. The growth rate has almost halved, the balance of payments is in poor shape, the Pakistani rupee has depreciated significantly, and external debt is large and rising, according to UNCTAD’s Trade and Development Report 2019. While support from China and Saudi Arabia and a large IMF loan have helped address the immediate problem, the crisis has not been resolved.
MAIN ISSUES
1. Ever-increasing debt both domestic and international. Islamabad continues to borrow to repay past debt. In July it signed yet another deal with IMF for a bailout worth $6 billion
2. Ballooning public deficits and losses in state-owned companies
3. Increase in trade deficit and keeping the exchange rate constant
4. Rising inflation, growth skewed toward consumption, low investment and job creation
5. Only 1% of Pakistanis pay taxes. The country has one of the lowest tax-to-GDP ratios (11%) in the world
6. Imran Khan vowed to curb tax evasion and graft before coming to power but little has been done so far by the administration
7. A recent tax amnesty scheme implemented by the government failed to kick off
8. Not only has Khan’s government failed to increase revenue flows, it has also been unable to cut non developmental expenditures
9. Post debt servicing, the biggest source ..
10. The funds the military receives from the state budget is in addition to the revenue it gets from its large business operations. It recently moved into the mining,and oil and gas exploration sectors, some of which were facilitated by Khan’s government. Reports peg the size of Pakistani army’s commercial empire at $100 billion, which covers banking, cement and real estate sectors.
@Recently Active Users
For decades, the Pakistani authorities have been unable to establish effective tax collection practices. Currently, only one percent of Pakistanis pay their taxes and the country has one of the lowest tax-to-GDP ratios in the world.
Successive governments have avoided imposing stricter controls because they have been staffed by members of the same elites that are actively evading taxes. They are able to do so not only because of government inaction but also because of widespread corruption. In fact, it is cheaper for them to bribe than to pay their dues.
Thus, the tax burden in Pakistan falls overwhelmingly on the poor who pay in various indirect ways and who already struggle to make ends meet. Currently, a third of the nation is living below the poverty line.
Khan promised to crack down on tax evasion and corruption before coming to power but little has been done so far. He has not introduced any measures to address corruption in the ranks of his own party, for example. Recently it emerged that a minister in Khan's cabinet had evaded paying taxes for years by transferring his luxury properties to one of his employees, but no action has been taken against him so far.
Given this selective justice, it is hardly surprising that a recent tax amnesty scheme implemented by the government in which tax debt is forgiven in exchange for a fee failedto kick off.
While Khan's government is failing to raise revenue flows it is also failing to cut non-developmental expenditures.
The biggest source of such spending after debt-servicing is the military which officially receives around 18 and 23 percent of the budget every year.
The funds the military receives from the state budget is in addition to the revenue it gets from its large business operations, which include over 50 commercial entities generating some $1.5bn annually. It just recently moved into the mining and oil and gas exploration sector, some of which was facilitated by Khan's government.
So despite being rich itself, the army continues to be a burden on the Pakistani economy and to get preferential treatment. At this point, there are no signs that this would change under the current government.
Khan announced the formation of a new committee called the National Development Council to oversee Pakistan's economic growth strategy. Apart from a number of ministers with relevant portfolios and key government officials, the army chief is also a member of the council, which indicates that the military will continue to be part of any decision-making on the economy in the future.
A few days before the annual budget was submitted to parliament, Khan also announcedthat the military was going to take a voluntary budget cut, attributing it specifically to the economic turmoil. However, when the details of the budget were made public, it turned out that the allocation to the army saw an increase of 17.6 percent from last year. As a result, some have speculated that the earlier announcement was just a PR exercise, aimed to fool Pakistan's international creditors, like the IMF, who have urged the government to cut down its non-development expenditures.
Despite this persistent pressure from outside entities, defence spending continues to be prioritised. The official justification for this policy is always the perceived threat from neighbouring countries, which in some ways the military itself perpetuates.
Both Afghanistan and India are regularly identified as sources of threat to the national security in local mainstream media, yet the fact that militant groups targeting these two countries are allowed to organise on Pakistani territory is often overlooked.
Their presence maintains low-intensity conflicts with neighbouring countries, which conveniently justifies increased military spending to protect Pakistan from "foreign enemies".
Thus Pakistan appears to be stuck in a vicious cycle of accommodating the interests of the army and the powerful economic elites which cripple its economy and force it to continue borrowing from international creditors, sinking further into debt and inching closer to full economic collapse.
At this point, those in power and those who enjoy economic privileges must realise that this status quo is unsustainable. The only way out is to implement a just tax system along with a cut or at least a freeze on the ever-increasing military budget.
If Pakistan is to avoid the looming economic disaster, it must revise current spending and prioritise expenditures that will actually generate social and economic development and uplift the poor, not just the civilian and military elites.
