Ayesha Saba

Pakistan needs to improve its fiscal discipline to reduce dependence on domestic and foreign loans which are burdening the economy, says a renowned economist. “Lack of fiscal discipline has been one of the major problems of Pakistan’s economy. Governments have been spending more than they have earned through taxes and, in turn, to finance their operations, they resort to heavy borrowing from domestic as well as external sources,” said Dr Usman W. Chohan, Director of Economic Affairs and National Development, Centre for Aerospace and Security Studies, Islamabad, while talking to WealthPK. “While debt in itself is not bad, Pakistan had been utilising it to finance the current expenditures of the government instead of spending on development. This leads to a decline in the credit rating of the country which negatively impacts future lending as well as investment,” he elaborated. Dr Usman mentioned that Pakistan’s budgetary condition has deteriorated over the past three decades.

He said the main factors contributing to this deterioration are the provision of subsidies to the power sector, low level of national savings, growing government debt, fluctuating currency rate, prolonged trade deficit, and inflation. He said that Pakistan must undertake a multifaceted approach to extricate itself from this quagmire. “First and foremost, the nation needs to prioritise comprehensive structural reforms aimed at reducing reliance on external borrowing,” he emphasised. “By bolstering revenue generation through progressive taxation, curbing tax evasion, and fostering a conducive business environment, Pakistan can gradually reduce its dependence on International Monetary Fund (IMF) loans,” he added.

Dr Usman said effective public investment should be made in dams and canals, software industry, think tanks, human resources, education, and healthcare to ensure sustainable and long-term growth. “By focusing on sectors with a comparative advantage, such as agriculture, textiles, and technology, Pakistan can strengthen its economic resilience and diminish the need for external financial aid,” he added. Dr Usman cautioned that in a global recession, no country would be able to help, and that Pakistan needed to exploit its own opportunities. He said that if significant structural reforms are not made and economic challenges not taken seriously, the next crisis might be much bigger and far worse. According to Pakistan Economic Survey 2022-23, the unprecedented rise in expenditure during the fiscal year 2021-22 compared to the revenue put the fiscal sector under severe pressure.

Consequently, the revenue-expenditure gap widened, and overall, the indicators of fiscal performance witnessed a sharp deterioration during FY22. For instance, fiscal deficit widened by 55% and reached Rs5.259 trillion during FY22 against Rs3.403 trillion during FY21. In terms of gross domestic product (GDP), fiscal deficit increased to 7.9% from 6.1% during the period under review. The primary deficit reached Rs2.077 trillion during FY23 (-3.1% of GDP) from Rs653.6 billion during FY21 (-1.2% of GDP) owing to higher growth in non-markup expenditure. Similarly, a sharp rise in current expenditures relative to revenues jacked up the revenue deficit from 3.9% of GDP during FY21 to 5.2% during FY22.

Credit: INP-WealthPk