Economic challenges and political chaos are running wild in Pakistan. Since the inception of the country back in 1947, Pakistan has been dealing with immense economic challenges and political uncertainty. The fiasco of regime change back in April of this year has become another chapter of our unfortunate, tainted history. Nonetheless, what has happened has happened, and as they say: the show must go on.
Although the current government set up in Pakistan is that of a coalition, nonetheless, the majority of the ministries have been given to PML-N politicians. Henceforth, it would be safe to say that the PML-N has formed the relatively new government and has come into power for the fourth time (highest by any political party in Pakistan). The incumbent government is trying its best to save Pakistan from an economic collapse. Pakistan needs at least $15 to $17 billion every year in its foreign exchange reserves so that it can barely survive. Oil import is done on a quarterly basis and costs around $2 billion, hence taking the total annual cost for importing oil to $8 billion. The rest of the $7 to $9 billion is probably spent on the import of essential and non-essential items (read luxury products).
The question that we face is: where does Pakistan come up with such a huge amount when its exports are low, hence resulting in an insufficient amount of money in its foreign reserves?
The answer to this question lies in the inevitable case of loans. Before the recent loan by our good neighbour China, our foreign reserves stood somewhere at $9.8 billion. With China lending Pakistan $2.3 billion worth of funds, the tally in the foreign exchange is now worth $12.1 billion. On a recent visit to Saudi Arabia, the COAS General Qamar Javed Bajwa gave the Saudi Crown Prince Mohammed bin Salman assurances against security threats that arise for the Kingdom. It is rumoured that the heir to the throne was very pleased and satisfied by the General’s remarks and Pakistan could receive a further $2 billion. This would make the tally $14.1 billion.
The question, then, remains as to where does Pakistan get the remaining $2 billion to financially survive for another year.
The answer is to keep knocking at the IMF door. The IMF has provided Pakistan with loans roughly 22 times in its history. The first IMF loan was sought by military ruler Ayub Khan’s government with an amount of about $112 million. The loans which IMF gives to Pakistan might have some fringe benefits for financial institutions in Pakistan, but overall, the conditions are very strict. These conditions burden and demoralise the common people. One particular condition, which is all too famous, is that of heavy taxes. When Imran Khan came into power back in 2018, he was probably of the simple and noble opinion that there is a need to generate direct taxes so that the government generates substantial revenue. Salaried-class individuals at that time earning more than Rs. 400,000 per annum (as given by paycheck.com) fell within the income tax bracket. With a population of 220 million Pakistanis, collecting tax from such individuals could have provided the government with substantial amounts of revenue. However, this was not to be the case, as the former premier could not get the majority of Pakistanis into the direct tax net. Upon observing such a situation, the IMF instructed Pakistan to increase indirect taxes in electricity, fuel, gas, general sales tax and so on, hence burdening the common people and making life pretty much miserable as prices shot up due to the inclusion of indirect taxes.
The current PML-N government has imposed a “super tax” on 13 main industries in Pakistan. However, are just 13 enough? Wh.,at about the education sector in Pakistan? As per a Google search, there are a substantial number of private institutions in Pakistan. Are they paying tax? If they are, then they are “teaching” future generations something good, if not then revenue from this specific sector is being missed by the Government of Pakistan.
The question that remains to be answered is as to when the IMF will disburse the remaining amount of the $6-billion loan program to Pakistan so that we can financially survive for another year or so. The government is shying away from confidently answering this question. The sooner this question is answered decisively, the better it would be for Pakistan. However, perhaps it is not being confidently answered because some more strict conditions are yet to be revealed from the IMF’s side, which would most probably lead to more problems for the common people. Nonetheless, the finance ministry needs to secure the funds soon. Or perhaps, it is waiting for the expertise of a former finance minister.