By Tirthankar Mitra
Pakistan Prime Minister Shehbaz Sharif securing a $7 billion package from the International Monetary Fund (IMF) in September was accompanied by a commitment to break Pakistan’s longstanding reliance on bailout programmes. Since 1958, it has taken recourse to it 20 times. The country is struggling with a worsening unemployment crisis and a brain-drain. There are recent reports of the World Bank cancelling a $500 billion loan for a clean energy programme.
This is another pointer to Pakistan’s cash-strapped economy lurching from one crisis to another. There has been a revision of the China-Pakistan Economic Corridor power purchase agreement and things are not quite looking up for the country on India’s western border. Nearly a million workers have left Pakistan since 2008, according to a study by Karachi-based Pulse consultants.
The exodus is gaining momentum, it added. The alarming rate of unemployment is flagged by an ILO report. Reverting to the IMF package, one wonders whether it is a long-term solution to Pakistan’s economic woes. It was learnt that the IMF package can help the country to stay afloat now. In a way, it is a temporary solution. But there are silver linings too.
The Pakistan economy is showing signs of recovery, according to the October update of the World Bank. Economic activity was marked with an upsurge in the financial year (FY) 2024 following a recession in the previous FY.
The growth which was 40.2 percent in FY 2023 rose to 40.5 percent in 2024 FY. But this growth rate is insufficient. This growing stability has led the central bank to cut rates aggressively. The stock exchange has entered a bull run due to greater optimism around economic stability but sustaining this recovery requires fundamental economic reforms.
The IMF package is not a milk and honey one for Pakistan. For it comes with an uncomfortable precondition of stopping Chinese investments in the borrowing country. It comes at a time when Pakistan was looking forward to attracting more Chinese companies with 9 Export Promotion Zones (EPZs). Earlier this year Prime Minister Sharif sought the Belt and Road Initiative (BRI) from China which did not materialise.
Chinese investments in Pakistan have dropped from 25 percent in 2023 to 22 percent in 2024. Chinese investments have stopped, things are looking fine but no one knows what is going to happen next.
Pakistan has to impose tax hikes and abolish exemptions in retail, export and agriculture sectors following the IMF deal. The IMF sought taxation equal to 3 percentage points of the GDP. By expanding the tax base, the revenue targets have to be achieved, but this is a politically challenging task given the influence of lobbies such as retailers.
Pakistan has to achieve equitable distribution of taxes. The tax net has to include sectors like retail and real estate. There is a greater commitment in Pakistan to the idea of working towards fulfilment of the IMF conditions. This is a change from the past.
The people, including youth, need investment and relief. The economic landscape reflects the complexities faced by the people of Pakistan. Challenges continue to persist. This is a period of structural shifts reflecting the resilience and adaptability cutting across the socio-economic divides of Pakistan. (IPA Service)
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