PAKISTAN’S CURRENT STATE OF ECONOMY

Pakistan’s economic woes – dwindling foreign exchange reserves, low exports, high inflation, growing
fiscal deficit, and current account deficit – are nothing new, and once again, the country finds itself
knocking on the doors of the International Monetary Fund (IMF) for what will be its 22nd loan. While the
exact amount of this package has not been determined, Pakistan already owes the IMF billions from
previous programs. Indeed, 30.7% of Pakistan’s government expenditure is earmarked for debt
servicing, which cannot be supported by its decreasing revenues. Already on the Financial Action Task
Force’s (FATF) grey list, Pakistan must focus its attention on resolving its economic woes before it finds
itself on the shores of bankruptcy.

After all, the IMF is always ready to tow us back to town when the fuel runs out and make us pay
through our nose to carry out the repairs!

Two major indictors of Pakistan’s economy nowadays are government debt and exports.

According to Bloomberg, “Pakistan’s dollar reserves are depleting at the fastest pace in Asia and may
soon have a buffer that’s smaller than Cambodia – an economy that’s less than a 10th of its size.”

CAUSES OF ECONOMIC CRISIS

Rising Current Account Deficit: MORE IMPORTS LESS EXPORTS

It is spending more on imports than it receives on exports, with its current account deficit having risen
from USD $2.7 billion in 2015 to $18.2 billion in 2018. The major driver of this rising current account
deficit is an expanding trade deficit, which is mostly due to the rising imports under new China-Pakistan
Economic Corridor (CPEC) projects and low exports in general.

November, 2019

Pakistan’s current account surprisingly turned positive after a gap of four years as the inflow of foreign
currencies surpassed the outflow by $99 million in October due to a notable reduction in imports and
firm worker remittances

The IMF in its recent report on Pakistan economy estimated that Pakistan’s CAD would reduce to 2.4
percent of the GDP in current fiscal year as against 4.8 percent of the GDP in previous financial year.

Trade Deficit
Pakistan’s trade deficit shrank 36% to $3.9 billion in first two months of the current fiscal year on the
back of a one-fifth reduction in imports but exports marginally grew by 2.8% despite a steep currency
depreciation that added a heavy cost to the economy.

The trade deficit in both goods and services narrowed 47% to $1.41 billion in October compared to
$2.68 billion in the same month of last year.

FEDERATION’S FISCAL DISMEMBERMENT

FROM ONE NOTE

CIRCULAR DEBT

08-12-01

Contrary to Pakistan Tehreek-e-Insaf (PTI) government’s claim of reducing the flow of circular debt to
Rs12 billion a month, the Asian Development Bank (ADB) has showed a monthly increase of Rs21 billion
in the debt at the end of August.

Import led growth Model and increase in public debt

The previous government focused more on import-led growth strategy to finance large scale projects
under CPEC. By the end of June 2018, the gross public debt of Pakistan reached USD $179.8 billion,
showing an increase of $25.2 billion within a year. More than half of this increase in gross public debt
was due to an increase in public external debt, which grew by 30.1%.

The South Asian nation owes $6.7 billion in commercial loans to China over the three years through June
2022, according to the IMF, which this year approved a new program to bail out Pakistan from a crisis.
Islamabad needs to pay the multilateral lender $2.8 billion in the same period.

The rupee was losing its value and inflation, kept low by the low oil prices, was resurging with the rising
oil price. External debt was rising without any addition to the repayment capacity. It resulted in rapidly
falling foreign exchange reserves. In spite of these negatives, the real economy posted an 11-year-high
growth rate. To a large extent, this return of growth was associated with the boost given to the
investment rate by the CPEC projects.

Depreciation of Rupee against Dollar and Increase in Public External Debt

In 2018, the depreciation of the Pakistani rupee against the U.S. dollar alone was responsible for an
excessive USD $7.9 billion increase in public external debt.

Despite the massive depreciation in the rupee, Pakistani exports have remained almost the same.
Pakistan’s total debt and liabilities have risen steeply to Rs35.1 trillion or 91.2% of size of the economy,
further deepening concerns over debt trap that has started limiting the government’s policy options.

Meanwhile, the government’s external debt has also increased from USD $64.1 billion in June 2018 to
USD $65.8 billion in January 2019.

Declining FDI

With its domestic industry in ruins, Pakistan has not been able to rely on consistent foreign investment
for more than stopgap measures. It did recently receive USD $2 billion from the United Arab Emirates
(UAE) through the Abu Dhabi Fund for Development (ADFD), which provides concessionary
development loans. This inflow has increased Pakistan’s foreign reserves from USD $14.956 billion at the
start of March 2019 to $17.398 billion. In February, the Crown Prince of Saudi Arabia, Mohammad bin
Salman, signed seven Memorandums of Understanding (MoUs) with Pakistan, pledging up to USD $21
billion worth of investment over the next six years. However, relying only on foreign aid and friendly
countries for loans is not enough.

Foreign direct investment (FDI) dropped 52% to $1.37 billion in first 10 months (Jul-Apr) of the current
fiscal year due to spread of economic uncertainty.

The FDI had been recorded at $2.84 billion in the same period of previous year, the State Bank of
Pakistan (SBP) reported on Tuesday.

The FDI had dropoped to half at $1.66 billion in the last fiscal year compared to investment of $3.47
billion in FY18.

“Economic uncertainty prompted foreign firms to put their investment decisions on hold for the time
being

Decreasing FDI

Reasons

Uncertainty in the rupee-dollar parity as one of the major concerns of foreign investors

The central bank let the local currency depreciate 32% to Rs160 against the US dollar in the fiscal year
ended June 30, 2019. Since then, it has remained stable at around the same level.

Slowdown in economy.

Completion of the first phase of multi billion-dollar investment in Pakistan by China under the China-
Pakistan Economic Corridor (CPEC) was another major reason for the plunge in FDI in recent months. (
Slow down in Imports)

Country-wise FDI

China was the largest foreign direct investor in Pakistan as it invested $429 million in the first 10 months
of FY19. This was, however, one-fourth of the total investment of $1.72 billion it made in the same
period of last year.
The United Kingdom emerged as the second biggest investor as it invested $159.9 million compared to
investment of $265 million in the same period of last year.

Hong Kong emerged as the third largest investor with investment of $132.7 million compared to $145.4
million in the corresponding period of last year.

High Inflation

The inflation rate is now touching 12.5%, (september) which is a record level high over the last five years
mostly due to rupee depreciation and rising energy prices.

Importantly, inflation is a tax that erodes the purchasing power of the currency. Thus, the poor, who
hold much of their assets in cash, bear this tax disproportionately, while the rich can partly evade it by
holding assets that are return-bearing (like bonds), increasing in value (like land), or in a stable foreign
currency (like the dollar).

It can also force parents to choose between whether their child goes to school or works

Next, we ask if all inflation is bad and whether it should be zero. The answer is no. Most economists
today only consider inflation above high single digits to be bad. Moderate inflation, in the 3pc to 6pc
range is generally considered desirable, and inflation below 3pc can actually be risky. Why? Moderate
inflation can serve as a useful signal of demand pressures in normal times, and also lends flexibility to an
economy adjusting to adverse shocks: if inflation is near zero, disinflation must involve nominal wage
cuts, which are politically difficult

Causes

Fiscal Dominance

The first is money growth. For a fixed supply of goods, more money in circulation means higher prices.
Monetary loosening can happen due to structural factors like fiscal dominance, where the central bank
is forced to print money to finance fiscal deficits; and/ or cyclical surges in capital inflows, and the
accompanying credit/ real estate booms.

Two things can help fix it: a rise in the tax-to-GDP ratio so that there is a buffer in public finances; and
greater de jure and de facto independence for the State Bank (progression on this has been quite
uneven).

Global Oil Prices

As a heavily oil-reliant importer, and with no real foreign exchange or fiscal buffers to limit pass-through
to domestic prices, a part of Pakistani inflation is simply determined by global oil price movements. At
one level, a government neither deserves credit for lower inflation when oil prices fall (as they did from
2014-16), nor the blame for higher inflation when they rise (as they sporadically did in 2017-18).
However, to be constantly at the mercy of a known exogenous quantity is not pardonable: Pakistan
must make a concerted effort to diversify its energy reliance away from oil and towards hydro, solar,
nuclear, clean coal.
Currency depreciations affect inflation similarly, except that they raise the domestic price of all imported
goods, not just oil. Depreciations are needed to fix balance-of-payments problems which can arise due
to unsustainable spending booms (as in the aftermath of the mid-2000s, as well as 2014-17); adverse
terms of trade shocks (like oil price rises); or weakening global demand for Pakistani goods and services
(as occurred during the 2008 global financial crisis).

Domestic Supply Shocks

The third is domestic supply shocks. Floods, droughts, crop pests can all raise the price of domestic
goods, and often goods that are essential to the poor. While governments cannot wish these shocks
away, it can and must invest in resilience mechanisms, as these are likely to benefit the poor most

Meager Tax Revenue and Collection

Despite rising deficits, Pakistan’s tax revenue was only 13% of its GDP in 2018.

During the current fiscal year, the country has seen a decline in its revenues while expenditures have
increased, resulting in a half-year fiscal deficit of 2.7% of GDP, the highest since 2010-11.

According to the State Bank of Pakistan, the sharp decline in revenue can be attributed to a fall in
development spending, reductions in income and corporate taxes, and taxes on petroleum products.

High Tax Target Under the IMF Program

The budget number that has aroused most excitement, even disbelief, is the tax target of Rs5,555 billion
for the FBR. The disbelievers say it has never happened, shall not happen.

Weak Governance and Poorly Regulated Financial System

In its recent report “Pakistan @100: Shaping the Future,” the World Bank held weak governance
responsible for the fiscal deficit.

Pakistan’s poorly regulated financial system facilitates tax evasion, which contributes significantly to the
growth of the fiscal deficit. Having inherited this economic crisis

Weak Structure of the Finance Ministry

Former finance minister Dr Hafiz Pasha Speaking at the launch of his book, ‘Growth and Inequality in
Pakistan’, Pasha said the capacity of the Ministry of Finance was shamefully low and it was not able to
control the ongoing crisis.

“They don’t have the capacity nor do they have a senior professional economist who is specialised in
fiscal policy,” he said. “The DG debt was hired after a gap of many months and it’s not surprising; believe
me we are running into a difficult economic state.”

Highest Foreign Loans

For the first time in its history, Pakistan borrowed a whopping $16 billion in foreign loans in just one
year aimed at avoiding default on international debt obligations and financing its imports.

Out of the $16 billion, the PTI government took $13.6 billion worth of loans – the highest ever by any
government in a single year. The remaining $2.4 billion had been received in July 2018 during tenure of
the caretaker setup.

The $16-billion loans in the just-ended fiscal year included disbursement of $5.5 billion by Saudi Arabia,
the United Arab Emirates and Qatar. However, the data that the economic affairs ministry will publish
this week will not show $5.5 billion as part of federal government loans, according to sources.

Budget deficit hits 11-year high at 5% of GDP (May, 2019)

The budget deficit hit an 11-year high at Rs1.92 trillion, or 5% of the size of national economy, for the
nine-month period ended March 2019 due to continued double-digit growth in defence and debt
spending, and sinking revenues.

In terms of revenues of the federal government, the debt and defence spending consumed 77.7% of the
total federal government’s revenues in the Jul-Mar FY19 period

The govt books highest-ever budget deficit of Rs3.45tr.

Incapacity of the FBR/ FBR still functions on 20 th century model

A recent note by FBR Chairman Shabbar Zaidi to heads of all field formations revealed that 75% of the
Inland Revenue Service collected only Rs102 billion or 7% of the Rs1.5 trillion income tax collection in
the last fiscal year. Rest of the Rs1.4 trillion was either collected automatically or with very little effort
by the remaining 25% workforce.

The field formations, intellectual input, capacity for improvement, other resources and physical
infrastructure at present are not in line with the actual composition of tax collection, according to the
note sent to 23 heads of field formations.

The chairman wrote that in the 1980s, around 60% of the revenue was collected by efforts related
directly or indirectly to the assessment process by the taxmen, which now shrank to a little under 7%

Poor Labour Productivity

At the heart of Pakistan’s economic problems and its incessant addiction to bailouts is the country’s
stagnant labour productivity. Defined as the output per unit of labour input, labour productivity
increases are primarily achieved through the increased use of machinery, skills improvement and
innovation.

Data suggests that during this century, Pakistan’s labour productivity has increased by an appalling rate
of 1.3 per cent per year, compared to 4.2pc per year in the 1980s.

According to experts, nearly one-third of Pakistan’s labour force is illiterate, while another 40pc has
under 10 years of schooling.
Of social ills, which further compound the economic challenges.

In the age of the Fourth Industrial Revolution, where even advanced economies are finding it
challenging to retrain their workforce for the jobs of the future, Pakistan is wholly unequipped to grow
and prosper.

The way out of this economic quagmire is only through an effective skills development and education
programme.

Poor Growth of the AGRICULTURE

Agriculture, the core of economy, has performed worse. Major crops sectors have grown at less than 3
per cent and minor crops sector at less than 2 per cent. Large scale manufacturing has grown at just
about 5 per cent.”

Projected GDP Growth

The central bank has anticipated a GDP growth of 3.5% for the current fiscal year, which is close to a
nine-year low of 3.3% hit in the preceding fiscal year. He said the surplus should help further build the
country’s foreign currency reserves.

REGIONAL INEQUALITIES

In the last seven years, around Rs2,048 billion was spent on the Public Sector Development Programme
(PSDP) in the entire Punjab, of which Rs1,048 billion was spent on Lahore alone and Rs1,000 billion was
spent on the rest of Punjab. This created regional inequalities,” Bakht said.

THE WAY FORWARD FOR IMPROVING ECONOMIC SITUATION OF THE COUNTRY

Attracting FDI

To make a significant impact on the current account deficit, Pakistan needs to ensure an investment-
friendly environment that attracts more foreign direct investment (FDI), instead of relying so heavily on
foreign aid.

Enhancing Ease of Doing Business

According to the World Bank’s Ease of Doing Business report, Pakistan ranks 136th out of 190 economies.
To improve this ranking and draw more investment, Pakistan should ease customs laws and regulations,
improve the security of the country, and rebrand and boost its international image as a desirable
destination for tourism and industry alike – a goal the current government is set to pursue as it eases its
visa policies, including its introduction of e-visas.

Focusing on Domestic Investment

It should also encourage domestic investment through more flexible tax policies, particularly targeting
small and medium-sized enterprises (SMEs). Such measures would reposition Pakistan on the
international stage as stable, competitive ground for foreign investment.

Pakistan also needs to focus on building its domestic industry to expand its export portfolio and enhance
its competitiveness in the international markets.

In 2018, Pakistan ranked 107th out of 140 on the Global Competitiveness Index (GCI), which measures
the performance of countries in indicators such as infrastructure, ICT adoption, macroeconomic stability,
labor market, skills, financial stability, innovation capacity, etc. The low ranking signifies that the
Pakistani government needs to take measures to stimulate economic growth and provide favorable
business environment.

Addressing Energy crisis

The country’s ongoing energy crisis, which has caused significant losses in industry, has led factory
owners to increasingly relocate to countries such as Bangladesh.

Need for Modernizing Industrial Sector

Moreover, since its exports currently lose out to low-priced, good-quality products from countries like
China and Bangladesh, Pakistan needs to modernize its industrial sector by establishing new plants and
equipment to enhance global integration. It can do this by investing in research and development (R&D)
to encourage product innovation and enhance labor productivity.

Broadening Country’s Export Portfolio and Exploring New Export Destinations

On top of these issues is the larger question of Pakistan’s failure to expand its export portfolio beyond a
few low value-added products, such as textiles, rice, surgical goods, carpets, sports goods, and leather
items, which is one of the largest factors behind its balance of payments deficit. Broadening the
country’s export portfolio and exploring new export destinations such as Eastern European and Central
Asian countries could revitalize foreign exchange earnings. As a security-oriented state, Pakistan’s
priority has never been the economy, but it now needs to focus more on geoeconomics over
geostrategy.
Exports of Pakistan decreased to Rs246,015 million in November 2018 from Rs248,128 million in
October 2018. Exports averaged Rs43,891.75 million from 1957 to 2018, reaching an all-time high of
Rs275,483 million in September 2013 and a record low of Rs51 million in April 1958.

How to Increase Exports?

In order to increase exports, first there is a need to increase the production of goods and services in all
sectors in general and in exportable sectors in particular.

There is a need to devise policies and strategies to increase production through capacity utilisation,
capacity expansion and productivity growth.

For capacity expansion, Pakistan needs to diversify the production base in favour of goods and services
with comparative advantage, global demand and growth potential. Some of these industries are
electronics and telecommunication equipment, automotive parts, biological pharmaceuticals, renewable
energy, petrochemicals and aerospace.

Furthermore, as Pakistan’s auto industry is beginning to look efficient, other downstream and upstream
industries should be established. Within the textile sector, the production of clothing and value-added
products should be expanded.

Finally, productivity growth will come automatically from investment in human capital and promoting
innovation

Broadening Tax Base

Currently, Pakistan is not taxing its agriculture sector and large businesses are often given big tax breaks.
Hence, Pakistan needs to broaden its tax base – by taxing the agricultural produce of landlords with big
land holdings and stop giving tax amnesties to big businesses – instead of overburdening current
taxpayers, improve fiscal transparency, and strengthen tax collection coordination at the national and
provincial levels to ensure that revenue targets are met. These steps would go a long way to addressing
the myriad financial and deficit issues stemming from the country’s weak governance.

A CHARTER OF ECONOMY: A SOLUTION TO PAKISTAN’S ECONOMIC PROBLEMS

Now, in order to increase exports and ease economic pressure, all political parties need to bring in ideas,
discuss them and build consensus for implementing them in the short and long run

The charter of economy, in simple words, is national consensus on the core economic agenda in an
attempt to develop a far-reaching framework for economic reforms in the country.

Invlusivity: The charter should not only be confined to the views of chambers of commerce, it should
also incorporate the voice of other important players such as farmers, labourers, technologists and
those involved in capital formation.

Independent Regulatory Bodies: A list of key regulatory bodies should be drawn up and provided a
guarantee that they will be made strong, autonomous and free from political intervention.
Consensus in key areas: Economic priorities may differ from party to party. However, a minimum
consensus should be developed in the areas of energy, taxation, water resources, environment,
domestic savings, social protection and labour. There should, at least, be consensus to reform and
privatise public-sector enterprises.

Mini-Charter of CPEC: The China-Pakistan Economic Corridor (CPEC) is critical for Pakistan’s growth and
development. All parties should agree on a mini-charter of CPEC in terms of what it entails and how it
should be implemented.

Debt Trap:There is a dire need for developing the charter of economy because government debt is
increasing with the passage of time and exports are not growing which are critical for strengthening the
economy. In the past five years, it has been noted that Pakistan is sinking deep into a debt trap and has
not been able to strengthen industries to step up exports.

Government’s role should be confined to legislation, policy development, regulation, capacity building
and facilitation with the objective of increasing productivity in all export-focused sectors. The private
sector should take the lead in making investment and value chain development on its own.

Assisting Private Entrepreneurs: Pakistan adopted a private sector-oriented strategy somewhat earlier
than other economies in the region but has not been able to expand exports compared to other
economies in the region. Though the contribution of private-sector enterprises is increasing significantly,
there is an urgent need to assist private entrepreneurs – who are dynamic, open to innovation and have
managerial capabilities – by providing a favourable business environment with good governance,
appropriate institutional and financial support mechanisms, an adequate legal and support framework
and other physical and social infrastructure.

Pakistan may begin by creating a competitive environment in the labour-intensive production of goods
and then gradually progress to more skills and technology-intensive activities

The role and effectiveness of commercial counsellors in improving relations with trading partners is
extremely important. For regional cooperation and trade, the strengthening of institutions is a must.

CONCLUSION

The coming months are going to be tough for the current government as the rupee is expected to
depreciate further, causing inflation to rise. Pakistan’s economic crisis cannot be resolved overnight.
Support from the IMF and friendly countries like Saudi Arabia, China, and the UAE will only provide
some breathing room in the short term to its shattered economy. Promoting manufacturing by creating
a more investment-friendly environment, broadening its tax base, and encouraging innovation and
modernization in export-led industries are just some of the most urgent measures the government can
take to address the growing fiscal and current account deficit.  Pakistan must take advantage of this
moment of hard-won reprieve by building a truly stable and sustainable economy before it once again
finds itself digging its own economic grave – and that of its people.
SOME OTHER CHALLENGES COMPOUNDING PAKISTAN’S ECONOMIC WOES

Some Challenges Pertaining to Pakistan’s IMF Program and Stormy Relations with the US

The enormous adjustment that this government is gearing up to undertake — pursuing a revenue target
that is 35 per cent higher than the revenues collected this year — will take a rain of taxes and every
ounce of goodwill at the White House in order to pass the reviews through which the Fund will be
grading the government’s performance.

All Fund programmes from 2002 till 2013 have been implemented when Pakistan’s relations with the
White House were either good, or at least the White House wanted to avoid putting pressure on the
Pakistani leadership. There was a brief interruption in this story — in the years of Salala, Raymond Davis
and the Abbottabad raid — but those days ended after the elections of 2013 and the days of soft
handling at the hands of the Fund returned.

The levers of power that the superpower wields over a small country like Pakistan are still intact,
notwithstanding the stupendous damage that the superpower has suffered to its own standing in the
world community as well as the erosion of its economic supremacy.

THE END OF THE ARTICLE

IMPLICATIONS / EFFECTS/ OF THE WORSENING ECONOMIC SITUATION.

With the country in the grips of a severe recession, even wealthy businessmen are crying out about the
government’s economic ‘adjustment’ policies. But the real pain is being felt, as always, on the street…

Rising Unemployment

Pakistan Association of Automotive Parts and Accessories Manufacturers through a newspaper

advertisement, which appeared on Monday, said that 1,200 jobs have already been lost in the
automotive industry in the last three months. It warned if the situation continues, this very industry will
lose a further 50,000 jobs soon.

The IMF has estimated that due to an economic slow down, unemployment in Pakistan will rise to 6.2%
in the next fiscal year from the current 6.1%.

Industrial Slowdown

He said that housing societies and builders have started massive retrenchment as their businesses are
badly affected because of multiple reasons. These reasons, he said, include inconsistency in
government’s policies, political situation, harassment by NAB and FBR, bureaucracy’s reluctance to sign
files and take even legitimate decisions, rupee devaluation and high cost of construction.

Media industry is also suffering amid loss of advertisements.

The auto industry has started closing down. Their production has reduced by more than 50 %.

According to Bloomberg, Pakistan’ economic crisis have slashed more than 40 percent jobs from the
labour market.

The growth in big industries contracted over 6% in the first two months of the current fiscal year,
highlighting a deeper economic slowdown which would further increase unemployment and poverty in
the country.

Large-scale manufacturing (LSM) output decreased 6.04% in July-August of the current fiscal year
compared to the same period of the previous year, the Pakistan Bureau of Statistics (PBS) reported on
Wednesday.

Declining GDP Growth

Pakistan’s GDP growth remained 5.2 % during fiscal year 2018 which will slow down to 2.9 % at the end
of the current fiscal year, claimed the IMF in its latest ‘World Economic Outlook 2019’ report released
on Tuesday.

In the coming fiscal year, the projected GDP growth is likely to remain at 2.8 %, almost the lowest in a
decade. Inflation will jump to 7.6 % against the 6% target set in the budget 2018-19, it added.

RANDOM

Mounting Circular Debt

Authorities on Monday told a parliamentary panel that circular debt has mounted to Rs795 billion

Increase in Foreign Exchange Reserves

The foreign exchange reserves held by the central bank increased 1.14% on a weekly basis, according to
data released by the State Bank of Pakistan (SBP) on Thursday. (October 24)

Pakistan received the first loan tranche of $991.4 million from the International Monetary Fund (IMF) on
July 9, which helped bolster the reserves. Previously, the reserves had jumped on account of $2.5 billion
in inflows from China.
Over time, the declining reserves have forced the central bank to let the rupee depreciate massively,
sparking concern about the country’s ability to finance a hefty import bill as well as meet debt
obligations in coming months.

SUGGESTIONS FOR INCREASING TAX COLLECTION AND TAX REFORMS

Develop a tax directory. All tax-payers return and assets should be put on a tax directory as a first step
towards transparency.

Reintroduce the wealth tax: Wealth tax such as the minimum assets tax of the American variety can be
levied. Revenue impact could be 0.5 percent of the GDP. This can also help to capture the assets through
agriculture income and is one way of getting around people who are into agriculture and have assets
abroad. It also strengthens income tax.

Introduce tax on agriculture: The provincial government must play a role in having this executed.
Agriculture income should be clubbed with with other income for tax purposes. Implemented the law of
pre-eminent domain such as already implemented in custom.

Revamp the Board of Revenue: Set up a new autonomous revenue authority with no link with the
government and hire employees at market wages. The board of revenue is one of the most important
organizations for Pakistan’s economy. Practical lessons can be learnt from Latin America.

Bring the informal economy into the tax bracket: Small scale informal sector is engaged in unrecorded or
undocumented economic activity and hence remains unregulated and untaxed. This sector ends up
using resources from other sectors and not paying back. They need to be taxed.

WHY BUSINESSES ARE RAISING a HUE AND CRY?

Fastest Increase in Interest Rate

In fact, some of these policies had begun to be implemented much earlier. Interest rates, for example,
had been rising steadily from January 2018 and more than doubled by July 2019 when the last of the
rate hikes was applied. This was the fastest pace of interest raise increase in decades, and delivered a
shock to business and industry the likes of which they had not felt since at least 2008, when the great
global financial crisis hit. In one year alone, the cost of borrowing doubled, and those who had recently
taken out loans for business expansion, found themselves holding stranded assets that had to be repaid
at astronomical rates, while there was no market left for the additional output that these newly invested
plants would produce.

Decrease in Exchange Rate

Likewise with the exchange rate, which fell by 30 percent since July 2018, an adjustment that was long in
the making and glimpses of which had already been seen the previous year.

Extremely Ambitious Tax Target

5.55 trillion for new tax year.