Macroeconomic issues of Pakistan

Economy of any state plays an important role because it represent the stability and
strength of a state. So it is very important for any country to make sure its economy
stable. Pakistan is one and only of countries which have seen too much variations in
economy because of internal and external circumstances which have delayed the
growth which ultimately results in decline in stability and therefore Pakistan is in the
list of developing countries. Following factors are cause of macroeconomic issues of
Pakistan and comparison of these factors with different south Asian countries:
1. Inflation:

High rate of inflation causes economic backwardness in poor nations. Due to high
level of price, purchasing power, value of money and saving of the consumers tend
to decrease. Rate of inflation in Pakistan was 3.93% in 2018. Whereas, Maldives
inflation rate in 2018 was 1.5%.
2. High Degree of Illiteracy:

Illiteracy rate is very high in poor countries while it is almost zero in rich countries.
There is lack of technical education and training centres, which is necessary for
economic growth and development. Literacy rate in Pakistan was 62.5% during
2018 whereas the literacy rate in India was 75% in 2018.
3. In-appropriate Use of Natural Resources.

Mostly there is shortage of natural resources in developing nations and this is also
a cause of their economic backwardness. Natural resources are available in various
poor countries but they remain un-utilized, under-utilized or misutilized due to
capital shortage, less efficiency of labour, lack of skill and knowledge, backward
state of technology, improper government actions and limited home market.
Natural resources contribute to the GDP about 1% in Pakistan but in Afghanistan
about 0.70% in 2015.
4. Lack of political consensus:

There is political instability in the most of the developing countries. There are a lot
of clashes between government and the opposition that is a cause to reduction in
domestic as well as foreign investment. Political instability keeps low the level of
economic development. For example now a days PPP and JUI (F) joined together
to demolish this government. So this mess create downfall in economy. similarly
In india
5. Deficiency of Capital:
Shortage of capital is another serious problem of poor nations. Lack of capital leads
to low per capita income, less saving and short investment. National saving is
10.7% of GDP and total investment is 12.5% of GDP in Pakistan. Rate of capital
accumulation is very low as 5%. On the other hand, capital output ratio (COR) is
very high which is not desirable for economic development. Similarly Sri Lanka has
shown steady growth over the last decade although key macroeconomic
challenges persist. Sri Lanka is a middle-income country with a GDP per capita of
USD 4,102 (2018) and a total population of 21.7 million people. Following 30 years
of civil war that ended in 2009, Sri Lanka’s economy grew at an average 5.6%
during the period of 2010-2018, reflecting a peace dividend and a determined
policy thrust towards reconstruction and growth; although growth slowed down
in the last few years.
6. Mounting debt:
In the shaping of economic growth of any country, researchers revealed that
external debt plays both an optimistic as well as pessimistic role mainly in the
developing countries. It is useful when any government uses external debt for
investment-oriented projects like infrastructure, energy, and agricultural sector.
Furthermore, external debt would affect negatively when it is utilized for private
and public consumption purposes, which do not bring any return.
Pakistan is also in one of those developing countries which have a higher debt rate
burden. According to the International Monetary Fund (IMF), $27 billion worth of
Pakistan’s external debt will mature in 2-year – the mounting repayment burden
that carries grave implications for bailout package. Ministry of Information,
Government of Pakistan also recorded that Pakistan’s foreign debt from 2008 to
2018 increased substantially by $60 billion, reaching $97 billion from $37 billion.
Siri lanka also suffering from this situation of mounting debt. In 2018 Sri Lanka
public debt was 62,666 million euros 74,008 million dollars, has increased 5,880
million since 2017. This amount means that the debt in 2018 reached 83.28% of
Sri Lanka GDP, a 5.9 percentage point rise from 2017, when it was 77.38% of GDP.
The capacity to service external debt is becoming a difficult task in the face of
deteriorating terms of trade, mounting current account deficit, depreciating local
currency value, heavy dependency on imports and tightening borrowing conditions.

7. Shrinking share in world trade:

The amount by which the cost of a country's imports exceeds then the value of its
exports is known as trade deficit. In absolute terms, Pakistan lost its market share
by one third, whereas India has doubled its market share during the last 12 years.
In 1999, India’s share in global trade was 0.67 per cent, which scaled up to 1.28
per cent in 2011 despite global recession. Even Bangladesh’s global market share
in 1999 was 0.06 per cent, which now has doubled and reached to 0.14 per cent
which is equivalent to Pakistan’s share. Pakistan’s exports fell to $23.64 billion in
2011-12 from $24.82 billion in 2010-11, showing a decline of 4.75 per cent.
Contrary to this, world trade expanded by five per cent in 2011 compared to 13.8
per cent growth in 2010. The data reveals that Pakistan exports to Asian countries
slightly fell to $11.709 billion in 2010-11 from $11.556 billion in 2011-12, showing
a decline of 1.3pc. However, the share of Asian countries in Pakistan’s exports
stood around 47pc.
8. Un-fair Wealth and Income Distribution:
There are not only regional inequalities in developing countries but also wealth
and income inequalities. There is unfair wealth and income distribution in less
developed nation. 20 % extremely rich population has 50.02% of national
resources, while 20 % poorest population has just 6.37 % of national resources in
Pakistan. The difference between rich and poor is increasing day by day.
9. Unproductive Use of Funds:
The unproductive expenditures are rising day by day in developing countries
like Pakistan due to socio-economic and administrative reasons. During the
year 2009-10, Rs. 343 billion were spent for defence. About 75% of the budget
is spent on defence, administration, repayments of loan and interest charges
in Pakistan.
10. Excessive tax and regulation:
Pakistan has one of the lowest tax-to-GDP ratios in the world. 90% tax collection
is through with holding agents or voluntary payments as advance tax or payments
with returns or at import stage. Sadly, the bureaucracy wants to levy more taxes,
demands more funds to run the monstrous machinery, but have no plan, or even
a desire, to bridge the huge tax gap. According to FBR’s Year Book 2017-18, total
direct tax collection in last fiscal year was 1536.6 billion.
The tax system is not delivering the potential revenue in Sri Lanka. As income
increases in a country, the revenue also increases although the rate of increase
will decline after some time. This is not happening in Sri Lanka. Sri Lanka’s per
capita income has increased from US$ 720 in 1995 to US$ 2053 in 2009 but our tax
revenue has declined from 20.4 % GDP to 14.6 % GDP during this period. Almost
90% of revenue comes from taxes (10% is accounted by non-tax sources). Tax
elasticity measures the extent to which the tax system generates revenue in
response to increase in income without change in the tax rates. This is less than
unity or one and not a healthy sign.

The key reason for this is that the tax base has not broadened in line with the
increase in income or economic activities. The reason for the weak tax base is the
multitude of tax exemptions, tax evasion, many discretionary tax measures in
operation, and weak tax administration.