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How to Fix the Pakistani Economy

Pakistani Economy

By: Dr S Akbar Zaidi

Economic reform without political consensus is impossible

By now, it is abundantly clear that the Pakistani economy is not working, at least not for the overwhelming majority of the people in the country, and perhaps not even for the politically well-connected rent-seeking elite for whom the entire economic structure has been distorted in the first place. What, then, is the way forward? Imran Khan’s economic team, led by Finance Minister Asad Umar, appears to be taking a long time in getting settled in and appear indecisive about what to do next. In this write-up, Akbar S. Zaidi, a renowned political economist and a teacher at the Columbia University in New York, and at the IBA in Karachi, has discussed in detail the ways and means to fix the Pakistani economy. 

Reform of Pakistan’s economy should be undertaken after considering both economic and political factors. In deciding policy directions and reforms, you have to get the political parties together to form an agenda which all broadly agree upon, that certain things vital for the economy and for the well-being of the people, like taxation reforms, should not be messed with, regardless of the party in power.

There should be a minimal consensus between all the political parties on letting a policy continue if a change is to be expected. This predominantly requires one to know what a certain political party wants to achieve and what it wants to do that is going to set the direction of the economy for the long and medium term. Basically, what Pakistan requires today is a robust taxation system, completely revamped and expanded.

Today, less than 1 percent of Pakistan’s population pays income tax, and most do so involuntarily since their tax is deducted at source. The government should go after tax defaulters and extract money from them. In revamping all this, technocratic solutions are useless. All the parties know that revenue needs to be enhanced. If all the major parties form a consensus, a lot can be achieved.

There is a dire need to rationalize taxes across all the verticals. Many sectors of the economy, like agriculture and industries, decry multiple layers of taxation by the state which need to be rationalized in such a way that they are uniform as well as progressive. There are certain categories which can be taxed, like income, wealth and consumption. Tax should be based on income and wealth, not through an indiscriminate indirect tax mechanism.

A major part of the expenditure goes to defence which needs to be waned and directed towards expenditure on social sectors such as healthcare and education. Pakistan should spend more on schools, hospitals, social development infrastructure, and the knowledge economy.

Things have changed now. Our exports are particularly poor and I do not yet see hope in achieving anything through our existing exports. Our exports are hopeless, we have hardly diversified and been dependent on the same export mix for 50 years. There is nothing we can do with our current exports. All we have is kinoos, dates and some textiles. There is little of value that we have that can be exported to increase foreign exchange. No matter how much we devalue our currency, our exports cannot be increased in their present form. We need to be brave enough to accept this.

Read More: The Economy of Pakistan

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