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  • 14 Jul, 2024

Is Pakistan's economy, plagued by crisis, showing signs of recovery at last?

Is Pakistan's economy, plagued by crisis, showing signs of recovery at last?

Prior to Wednesday's budget presentation, there's a decline in inflation and an increase in forex reserves. Nevertheless, analysts caution that it's still early to draw conclusions.

In Islamabad, Pakistan, the government is gearing up to unveil its annual budget this Wednesday, aiming to strike a delicate balance between fulfilling domestic obligations to its 240 million citizens and meeting the fiscal prudence expectations set by the International Monetary Fund (IMF), a significant source of financial assistance.

With aspirations to boost the gross domestic product (GDP) growth rate to over 3.5 percent from the previous year's 2.38 percent, Pakistan is striving to revive its economy, which has languished for nearly two years due to political instability.

Recent engagements between Pakistani officials and the IMF have been frequent, with Prime Minister Shehbaz Sharif taking a lead role, particularly after assuming power through a coalition government following the February elections. Sharif's diplomatic efforts have taken him to key allies like Saudi Arabia, the United Arab Emirates, and China, where discussions have centered on attracting foreign direct investment to Pakistan.

Yet, the question remains: Is Pakistan's economy genuinely on the path to recovery? Are the government's initiatives translating into tangible benefits for ordinary citizens? And what are analysts' perspectives on the priorities for the upcoming budget?

Regarding the signs of economic resurgence in Pakistan, the latest data from the country's central bank and international institutions like the IMF present a cautiously optimistic outlook. Notably, Pakistan has seen a significant slowdown in inflation, which soared to 38 percent a year ago but has since dropped to 11.8 percent over the past 12 months. Basic commodities like wheat and fuel have witnessed price declines, while foreign exchange reserves have rebounded, alleviating concerns about the country's ability to cover import costs.

Moreover, the Pakistani rupee, which experienced a sharp depreciation against the US dollar, has stabilized to some extent. The stock market has also demonstrated positive momentum, albeit with some fluctuations.

The IMF, which recently concluded a Stand-By Agreement program with Pakistan, worth $3 billion, has acknowledged improvements in the country's macroeconomic conditions, citing moderate growth, eased external pressures, and a gradual decline in inflation.

While acknowledging signs of stabilization, economists caution against premature optimism, attributing the improvements to restrictive policies such as import limitations, which could stifle long-term growth prospects. Challenges persist, including high electricity prices and stagnant employment rates.

As for the impact on the public, analysts express skepticism about the sustainability of current stabilization efforts, which they argue have historically come at the expense of ordinary citizens. Measures like import restrictions and energy price hikes, aimed at meeting revenue targets, tend to hinder economic activity and exacerbate inflationary pressures.

Looking ahead, experts advocate for a more inclusive approach to taxation, emphasizing the need to broaden the tax base rather than burdening existing taxpayers, especially the salaried class. Pakistan's low tax-to-GDP ratio underscores the urgency of reform, with sectors like agriculture and real estate remaining under-taxed despite their significant contributions to the economy.

In conclusion, while Pakistan's economic indicators show signs of improvement, sustained growth hinges on comprehensive reforms that prioritize economic activity and equitable taxation. As the government prepares to unveil its budget, the focus must be on fostering an environment conducive to investment, job creation, and long-term prosperity, rather than short-term revenue targets that may impede progress.