### Summary
The caretaker government in Pakistan has several key challenges to address, including managing the economy, stabilizing the currency, ensuring energy security, and attracting foreign investments.
### Facts
- 📉 The transition period until the next elections is expected to last five to six months, and the caretaker government must not be complacent in addressing economic issues.
- 🧱 A capable team, including a central banker, a veteran bureaucrat, and an expert planning commissioner, has been appointed to lead the Special Investment Facilitation Council (SIFC) and tackle political interference.
- 💱 The depreciation of the Pakistani rupee against the US dollar is a concern, and measures should be taken to discourage hoarding and build up net international reserves.
- ⚡️ Energy security is critical, and immediate actions should be taken to ensure full recovery of costs in the gas and power sectors. Direct cash transfers and full recovery of taxes in the electricity and fuel prices may be necessary.
- 💸 Negotiating a new IMF program is expected after the current program expires, and efforts should be made to attract investments from friendly Arab countries under the SIFC.
- 📊 Improving the fiscal side of the economy is essential, including widening the tax net, targeting untaxed income, and digitizing the tax collection process.
- 🗳 The caretaker government should focus on effective governance and decision-making, setting an example for the next government. The cabinet's performance will be judged on how well they manage the economy.
- 🌍 Restoring confidence in Pakistan's economy and addressing key indicators such as investments, inflation, fiscal prudence, and circular debt are essential for a stable future.
Note: The text provided contains a mention of the publication date (August 21st, 2023). Since it is already past this date, some information may be outdated.
Pakistan's caretaker Prime Minister, Anwaarul Haq Kakar, expressed confidence that the country will overcome its economic challenges, emphasizing the need to bring the undocumented economy into the tax net and invest in human resources, during an interaction with a delegation of students from Harvard. He also discussed Pakistan's role in the USSR-Afghan war, highlighted the importance of democracy and emphasized the desire to establish a collaborative partnership with the US.
The article highlights the economic crisis in India in 1991 and draws parallels to the current state of Pakistan's economy, emphasizing the importance of focusing on economic growth and addressing the needs of the deprived sections of society.
Pakistan's recent financial aid and investment partnerships, including with the IMF, Saudi Arabia, UAE, and China, provide temporary relief from economic challenges, but the country must address issues such as low growth, high inflation, unemployment, and limited foreign exchange reserves through deregulation, investment in education and technology, tax reform, privatization, and political stability to achieve lasting prosperity.
Pakistan's interim finance minister, Shamsad Akhtar, has stated that the country's economic situation is worse than expected, and ruled out subsidies for the people due to non-negotiable commitments with the IMF and strict conditions of the $3 billion loan received in June.
Pakistan's economy has experienced a slowdown in its structural transformation, with a significant decrease in the share of agriculture and a lack of growth in the industry sector, indicating a premature de-industrialization contrary to successful developing nations, emphasizing the need for policies to boost industrialization and address taxation inequities.
Despite claims of massive foreign investment pouring into Pakistan, the country's economic woes and obstacles, such as deteriorating law and order, make it unlikely that these investments will materialize and bring about significant change.
Pakistan's ongoing economic woes, including budget deficits, trade deficits, and foreign exchange shortages, are not solely caused by corruption but rather a lack of will from leaders to implement necessary solutions and prioritize economic growth, such as increased productivity, better-managed state finances, and global competitiveness, while shedding unproductive state-owned enterprises. The country must also embrace economic pragmatism by opening trade with all countries, investing in human capital, and avoiding ideological distractions to achieve economic modernization.
Pakistan is facing a major economic crisis with high inflation, insufficient public resources, and policy decisions influenced by vested interests, according to the World Bank. The country needs to make hard choices and prioritize coordinated, efficient, and adequately financed service delivery to improve human development outcomes. Additionally, the Pakistani Rupee has reached a record low against the US dollar.
Pakistan is facing a deep economic crisis that has negatively impacted living standards, the private sector, and the environment, and the World Bank argues that urgent policy shifts are needed to address low quality basic services, improve fiscal management, create a more dynamic and open economy, and address failures and distortions in the agri-food and energy sectors.
Stefan Dercon, a visiting professor at Oxford University, says that Pakistan's elite must change in order to revive the economy and reduce dependence on foreign currency inflows, as maintaining the status quo will not provide a solution, and the IMF and other bilateral donors will not rescue the ailing economy.
Pakistan's consumption-oriented growth model, heavily reliant on foreign currency loans and imports, is not sustainable for long-term economic growth, and a shift towards investment-led growth and increasing the investment-to-GDP ratio is necessary to generate foreign currency and achieve sustainable growth.
The author argues that there are underlying pressures responsible for an ongoing spiral of devaluation in Pakistan's economy, and these pressures make it difficult to sustain recent gains in the value of the rupee.
An obsession with controlling the rupee-dollar exchange rate in Pakistan has led to ineffective administrative measures and failed attempts at stabilization, as the country's heavy dependence on imports and mounting external debt hinder economic restructuring and contribute to the rupee's depreciation. The need for a long-term plan focused on increasing exports, investment, and macroeconomic stability is emphasized.
Pakistan's economy is in dire straits, heavily reliant on external assistance and loans, with rising inflation, high poverty rates, and a plummeting Human Development Index, yet the country's military-owned enterprises continue to thrive, maintaining extraordinary financial control and leveraging their autonomy for corruption and lack of accountability.
