Best and worst for Pakistan

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Muhammad Arif

Muhammad Arif
Muhammad Arif: Chairman Centre of Advisory Services for Islamic Banking and Finance (CAIF), Former Head of FSCD SBP, Former Head of Research ArifHabib Investments and Member IFSB Task Force for development of Islamic Money Market, Former Member of Access to Justice Fund Supreme Court of Pakistan.

Money Market, Former Member of Access to Justice Fund Supreme Court of Pakistan.

Apart from gloomy environment something better was supposed to have started happening for Pakistan. Mostly on foreign fronts and some on economic fronts.

Imran Khan Visit to USA in the wake of coming agreement with Taliban is a good sign. Onward visit of Imran Khan to Russia would bring further stability to the region. Afghan president recent visit to Pakistan has opened some ways to open Afghan border 24 hours and then to extend it to Wahgah Border for trade in between Afghanistan and India. This would also create some environment for better relations with India. However a week after the Foreign Office had announced that Prime Minister Imran Khan will visit the United States on July 22, the US Department of State on 10th July has said that there is no confirmation by the White House of a visit of the premier this month. Gulf News on 9th July described Imran Khan Visit to Russia as “speculative”. Earlier media had reported that Prime Minister Imran Khan will attend the Eastern Economic Forum (EEF) on September 4 to 6 in Russia where his Indian counterpart Narendra Modi will be the main guest. So before we could have celebrated, the events seemed to have started dying down. But now on 11th July White House has confirmed that Prime Minister Imran Khan will meet US President Donald J. Trump on July 22. According to a press release issued by the White House, the US president will welcome the prime minister. The confirmation came amidst confusion over if the meeting would actually happen or not.

On economic front after patronage of IMF, Pakistan is now on its way to get funds for its infrastructure development from World Bank and Asian Development Bank and other countries under Paris Club arrangements. PKR has appreciated to some extent and current account deficit has also squeezed.

Now the question is that whether these developments are going to stay temporarily or die down or going to impact positively in 2020-2021.

Currently Pakistan’s Finance Ministry expects economic growth in the calendar year ending 2019 in the range of 2.5 %- 3.5 % well below a target of 6.2% set in 2018. Forward going the target should be set as 4% growth for the 2020 financial year. Further through tough austerity measures budget deficit is expected at around 7% of gross domestic product that needs to be reduced to at least 4-5% of GDP.

Reforms are also required to stimulate exports, overhaul the power sector, and push ahead with an ambitious infrastructure development project with China.

However Pakistani households would have to struggle, with inflation running at more than 9%.

Key sectors in Pakistan’s economy are all performing below the levels with Agriculture growing just 0.8% compared with a 3.8% target, industrial output is set to rise 1.4% against a 7.6% target and services are forecast to grow 4.7%, compared with a target of 6.5%.

So Imran Khan’s worst nightmare is Pakistan’s crumbling economy

Pakistan was required to pursue reforms to improve its entrepreneurial environment and facilitate private-sector development. The financial sector was needed to undergo modernization and restructuring. However, overall progress lags significantly behind other countries in the region. The tax system is complex and inefficient, although reforms to cut tax rates broaden the tax base, and increase transparency have been taken half heartedly but not on equitable basis. Reliance on indirect tax remains the main feature of tax collection.

The judicial system also suffers from a serious backlog and poor security, and corruption continues to taint the judiciary and civil service. Recent attack of Maryam Nawaz on judiciary though vague but raises lot of questions whereas in the past judiciary has hanged Zulfiqar Ali Bhutto, removed various prime Ministers and later admitted that the decisions were wrong and were made on the pressure of powerful institutions. Hence though technically independent, the judiciary is subject to external influences, such as fear of reprisal from extremist elements in terrorism or blasphemy cases or from inside institutions of the government.

The state’s excessive involvement in the economy and restrictions on foreign investment are serious drags on economic dynamism. Ongoing political instability and the threat of terrorist violence have made the business operating environment more challenging in recent years.

Protection of property rights is weak. Corruption is pervasive in politics, government, and law enforcement, and various politicians and public officeholders face allegations of corruption involving bribery, extortion, cronyism, nepotism, patronage, graft, and embezzlement.

Progress in improving the entrepreneurial environment is modest. The cost of completing licensing requirements is still burdensome. A large portion of the workforce is underemployed in the informal sector.

Increase in foreign investment, creation of Export-Import Bank, Likely changes in the auto industry, CPEC activities can give some breathing space for the economy as predicted time and again.

The top personal income tax rate is 30 percent, and the top corporate tax rate is 31-43 percent. The overall tax burden equals 11.0 -13.0 percent of total domestic income. Government spending has amounted to 20.6 percent of total output (GDP) over the past three years, and budget deficits have averaged 7.0 percent of GDP. Public debt is equivalent to 78 percent of GDP.

Number of active tax payers/filers may reach above 1.8-1.9 million this year. Taxation in Pakistan is a complex system of more than 70 unique taxes administered by at least 37 agencies of the Government of Pakistan with no legislation for Services, Agriculture, Wholesale, Retail sectors to bring them in to tax net.

Federal Board of Revenue collects tax at the Federal level, however collection of taxes at the provincial levels are weak and depends on Provincial Governments decisions just to mint money.

Trade is highly important to Pakistan’s economy; the value of exports and imports taken together equals 28 percent of GDP. The average applied tariff rate is 8.9 percent. The judicial and regulatory systems can deter foreign investment, and state-owned enterprises distort the economy. A majority of the commercial banks are now in private hands, but the sector remains vulnerable to government influence in terms of budgetary support.

Pakistan Textile Exporters Association (PTEA) says that textile exporters remain deprived of liquidity as a major part of their working capital remains blocked in refund cycle and under financial duress so much so that it seemed impossible to achieve target of enhancing the country’s export by 25 billion by June 2019.

Value-added textile sector is the backbone of the economy with an enormous potential to earn foreign exchange but around 54 pc of the country’s exports and 42 pc employment heads towards disaster because of declining trend in the exports. The exports of the country is needed to be brought on health grounds by resolving the liquidity issues through immediate payment of stuck up amounts in refund regime.

Main imports would remain the same. They are mineral fuels (16 percent of the total imports) and manufactured goods (16 percent). Others include: miscellaneous articles (12 percent), beverage and tobacco (12 percent), animal and vegetal oils and fats (10 percent), crude materials except fuel (9 percent), chemicals (9 percent), machinery (8 percent) and food and live animals (7 percent). Main import partners are China (19.7 percent of the total imports),), United Arab Emirates (12.1 percent), Saudi Arabia (12 percent), United States (3.2 percent) and Kuwait (6.3 percent).

Apart from cotton yarn and cotton products, Pakistan main exports are mineral fuels (19 percent of the total shipments), manufactured goods (19 percent) and beverage and tobacco (13 percent). Others include: food and live animals (11 percent), crude materials (11 percent), chemicals (11 percent), machinery (8 percent) and miscellaneous articles (8 percent). Main export partners are United States (13.6 percent), China (11 percent of the total export), United Arab Emirates (8.5 percent) and Saudi Arabia (8.5 percent).

So with these best and worst we have to move forward but this cannot be done without uniting every one whether you like it or not. In the current environment without every person and every institution we cannot move forward to achieve something good for the country.

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