What Happened in Pakistan
Pakistani economy is currently trapped in low growth, high inflation and unemployment, falling investment, excessive fiscal deficits, and a deteriorating external balance position. These are essentially the structural imbalances that act as binding constraints to sustained economic growth and development. In case of Pakistan the structural problems include: disproportionately higher involvement of government in economic activities, large informal economy, agriculture remains a major employer of workforce, concentration on cotton-related production activities, inability of the government to collect enough tax revenues, neglect of small and medium enterprises, ineffective governance and institutional structures, lack of accountability.
Cause
- Energy crisis being faced by the country is believed to be mainly due to circular debt, untargeted subsidy, distribution problem, and Government provides large subsidy owing to high generation cost compared to the price charged by distribution companies.
- Many of the problems being faced by the economy are due to weak regulatory system. In turn, the lax enforcement of laws and regulations is due to weak institutional capacity. This can be seen especially when it comes to the application of tax laws and competition law. In case of taxes, people evade and avoid taxes with connivance of tax officials and loopholes in the system. In-applicability of competition law facilitates sellers in general, to not only cheat on price, but on quality as well
What do for Recover
- Business environment should be made friendlier by simplifying start-up procedures, internationalization of companies, education of entrepreneurs, reducing administrative burden, and introducing reward of excellence for promoting entrepreneurship.
- Private sector is the engine of economic growth in any economy. Unfortunately, most of the economic policies, especially financial, are biased against the private sector. Consequently, this sector has failed to make desired contributions in the economy. The private sector should be allowed to play the leading role in all economic activities; of course, within a well-functioning regulatory environment. The govern-ment's primary role should be limited to provide social and physical infrastructures, and social protection to poor.
What actions are needed
- Strengthen public finances through revenue mobilization, cuts in wasteful and low-priority expenditure, and a strengthened fiscal decentralization framework
- Reform the energy sector to remove power deficit and untargeted subsidies.
- Reduce government's involvement in the economy.
- Implement financial policies to reduce inflation, protect the external position, and safeguard the stability of the financial sector.
- Remove imperfections in the market by strengthening competition law and its enforcement.
- Remove unnecessary controls so as resources are reallocated in desired direction.
- Remove policy bias against the private sector, non-agriculture sectors, and non-textile sectors. An important structural change would be to make the economy less dependent on foreign assistance for sustaining growth. This may take time, but the process must begin now. In this regard, measures should be introduced to induce more savings by all agents of the economy.
