One can only imagine the downfall that Pakistan has to go through in FY* 2022. Gosh, It’s such a tragedy, and god knows what else Pakistan is going to face because of these hurdles in FY 2023.
The textile industry and its related sectors, as well as agriculture, import material-based businesses, and the car industry, were the main casualties of the economic downturn in 2022. All of this has stoked the fear of widespread unemployment in the nation.
Businesspeople named 2022 as Pakistan’s economy’s worst-performing year. The interest rate increased to 16%, which is the highest since 1998–1999, and the country’s currency lost Rs49.31 in value when compared to the US dollar. Additionally, the consumer price index (CPI) * is presently hovering around 25% while inflation is in the double digits. The average Sensitive Price Index (SPI) * for the first five months of FY 2023 is roughly 28%.
The CEO of Pakistan Business Forum (PBF) Ahmad Jawad, had these things to say in an interview.
“Given the situation, it’s imperative that political parties come to an agreement on a “Charter of Economy” for at least 15 years before the general elections of 2023 because 2023 will be another difficult year for the economy. Devaluation and structural inflation provide unique difficulties for the government. He added that a high policy rate globally is exacerbating the problem.”
“Since our economy is not very large, we cannot afford the free-floating (exchange rate) * policy. We want a bailout in order to strengthen our currency, which is essential for generating economic activity in the nation”, continued Jawad.
According to Abid Qaiyum Suleri, executive director of the Sustainable Development Policy Institute (SDPI), “2022 was a tumultuous year for economies throughout the world because of Covid-19, international wars, and climate change.”
He said that complacency, enduring structural problems, and political impasse “has compounded the economic situation in Pakistan.”
“The good news of 2022 is that Pakistan did not default on its obligations under its foreign loan agreements, despite its inherent economic weaknesses. The bad news is that our debt structure, not the strength of our economy, is what kept us from defaulting, according to Suleri.
The issue to consider for the upcoming year is the requirement to maintain a deft balancing act in our connections with China, to whom we owe 30% of our debt, our contacts with Saudi Arabia, to which we owe almost 20% of our debt, and the US, who can assist in lowering the tone and tenor of the IMF. It’s still difficult to do this delicate balancing act, he said.
The CEO of PBF urged the nation’s decision-makers to “Find a feasible plan to pay down the country’s debt. Without it, our economic development would continue to decline as Pakistan’s burden of paying off its foreign debt and accruing interest rises. The nation continues to borrow, mostly to cover past obligations and fund its current account deficit (CAD) *.
He said that Pakistan’s overall debt is around $125 billion, which is undoubtedly a lot of money for us but not for China or the US. “The crucial issue, however, remains unanswered; would major economies like the US help us in repaying (or writing off) our debt,” he wondered.
On the other hand, some American and Chinese businesses have debts that are three times as large as ours. Even Walmart Inc. is worth $570 billion in the US, while China Petroleum and Chemicals Corporation is worth $326 billion, according to Jawad. Jahanara Wattoo, a former regional advisor for the South Asian Association for Regional Cooperation (SAARC), bemoaned that “We will stay in the vicious loop of the IMF and other lending institutions, and as a result, our currency will be much weaker. These donor organizations’ requirements repeatedly devalue the currencies of developing nations.
Simultaneously, she said, “market dealers all across the nation must be brought into the tax grid using the flat tax approach* in order to enhance our tax collection.”
Wattoo emphasized once more that political parties needed to comprehend that Pakistan cannot afford to change its economic policies every five years.
“The only way forward for 2023 is to reduce non-essential imports and reliance on oil, increase energy conservation, and sell strategic stakes in profitable state-owned enterprises to raise foreign exchange,” she asserted, adding that stronger incentives will need to be established for increased production of essential food products and productivity in the manufacturing sector.
Important Terminologies
- FY: A firm employs a 12-month accounting period known as a fiscal year for financial and tax reporting. A financial year is another name for a fiscal year.
- Consumer price index (CPI): The tool used to measure inflation is the consumer price index (CPI). It is used to calculate the typical difference in the pricing of household goods between two specified periods.
- Sensitive Price Index (SPI): Price Sensitive Indicator (SPI) Sensitive Price Indicator (SPI) is a tool used to monitor price changes for daily necessities on a weekly basis in order to take immediate corrective action.
- Current Account Deficit: The entire value of goods and services that a nation import exceeds the whole value of goods and services that nation exports, creating a current account deficit.
- Free Floating Exchange Rates: When a government permits the currency rate to be solely set by market forces without making any attempt to urge the central bank to affect the exchange rate’s external value, the exchange rate is said to be free-floating.
- Flat Tax: After taking into account any deductions or exemptions from the tax base; a flat tax (also known as a flat-rate tax) is a tax that has a single rate applied to the taxable amount.