Numerous challenges still haunt the current set up as common people have been far away still, to get relief and facing the heat of high inflation following the increase of petroleum product prices reaching an all-time high of Rs 331 for petrol and Rs 329 for diesel where analysts expect that numbers would likely soar to 30 percent to 32 percent
Since the arrival of the caretaker government, petrol is up by Rs 58 per liter or by 21 percent and diesel by Rs 56 or by 20 percent with people to receive more shocks in the shape of 50 percent gas price hike soon. Petrol and diesel prices were higher on two grounds, depreciation of Pakistan rupee and escalation in the finished product prices. Some relief is expected in the petroleum product price but it is a million-dollar question what would be the exact volume when the government reviews the prices on September 30th. But people should be mentally prepared for petroleum product prices, if they see a trimming it would be of lesser margin.
Gas Prices
Another shocking wave consumers have to hear soon would be the gas price rise of about 50 percent, elaborating and justifying the increase, the current minister of energy in a recent press conference said that there has been alteration in the purchasing price and selling price of gas and yearly the government has borne a suffering of Rs 350 billion.
This unpaid amount added to the circular debt and now the gas circular debt has reached to Rs 2900 billion whereas the power circular debt has been accumulated around Rs 2500 billion, so to curtail the mounting debt the government has no choice but to increase the gas price.
Government Campaign Against Hundi/Hawala
Key challenges to be addressed to keep the prices in control as recently the government has launched a massive drive to nab the hoarders, smugglers, hundi/hawla traders and black marketing people. Several were arrested and found numerous amount of foreign exchange during the drastic crackdown against the hundi and hawla operators which helped the changed the winds where earlier there was a perception that rupee might touch Rs 350 mark.
Macro Stabilization Challenges
Ali Nawaz, CEO of Chase Securities said that the economy faces substantial challenges, including inflation, fiscal deficits, unemployment, energy crises, security concerns, and rising public debt. To address inflation, a multifaceted strategy involving monetary policy adjustments, supply-side improvements, fiscal discipline, social safety nets and exchange rate stability is needed.
“Achieving sustained rupee recovery and attracting FDI and exports are interlinked goals, requiring economic reforms, export diversification, trade agreements, infrastructure investments, political stability, human capital development, and reduced bureaucracy”, he said.
In conclusion, Pakistan’s path to economic recovery hinges on comprehensive measures to address these challenges and create a favorable investment environment, Ali said.
International Financial Institutions
International Financial Institutions on a number of occasions have pointed out that to tackle the economic challenges, Pakistan can consider adopting measures that have been successful in other Asian countries. For example, some Asian neighbors have implemented robust reforms to stimulate economic growth. These reforms include: Investing in infrastructure: Developing infrastructure can create jobs, attract foreign investment, and improve connectivity within the country and with neighboring regions.
The report said the key to addressing challenges has been encouraging exports to generate foreign exchange and boost economic growth. This can be achieved through trade agreements, export-oriented policies, and support for industries with export potential.
Providing access to finance, business development services, and technology can help SMEs thrive.
Collaboration with international organizations like the ADB can also provide valuable support and expertise. Please note that economic challenges are complex and require comprehensive strategies involving multiple stakeholders. Implementing reforms takes time and concerted efforts from the government, private sector, civil society, and other key actors.
Remedial Measures
These remedial measures have been tabled since long but in pauses some recovery was witnessed in the economic activity but failed to sustain and suddenly the country is on brink of collapse as we lacked strategic planning. But the recent report of the Asian Development Bank released in September showed some glimmer of hope.
The revised projection assumes a modest rebound in demand, with private consumption and private investment growing by about 3% and 5%, respectively. Fiscal and monetary tightening will crimp demand, as will inflation staying in double digits. On the other hand, implementation of the economic adjustment program and a likely smooth general election should boost confidence, while the easing of import controls should support investment as fiscal tightening restrains public consumption.
Output Side
On the output side, better weather conditions will enable an increase in the area under cultivation and in yields, supporting recovery in agriculture. The government’s relief package of free seeds, subsidized credit, and fertilizer will also help. In turn, the recovery of farm output will feed through to industry, which will also benefit from the increased availability of critical imported inputs. The recovery of output will enable exports to pick up, although imports will grow much faster, due to pent-up demand. However, the downside risks are significant, including global price shocks and slower global growth.
Amayed Ashfaq Tola, President Tola Associates said that the key challenges Pakistan’s economy is facing are as follows:
The current inflation rate is high and a concern for Pakistan’s economy. The main reasons for this high inflation are high commodity prices in the international market, for e.g Oil.; and devaluation of the Pakistani Rupee against the dollar.
Another reason for the high inflation is the high interest rates, as this increases the cost of borrowing for businesses and this increase in cost is then passed on to the consumers. To manage and reduce inflation, the parity must be managed by ensuring that there is no currency speculation, hoarding and/or smuggling.
The interest rates should also be reduced in order to lessen the cost of borrowing, which will help reduce inflation.
An inequitable and inefficient taxation system. As per the interim report of the Revnue Resource Mobilization Committee (RRMC) 90% of the total income tax collection, was paid by only a meagre 126,908 filers. Further, the federal budget deficit for the current fiscal year is projected to be at Rs 7,505 Billion, which is 7.1% of the GDP. The interim report of the RRMC has proposed direct tax revenue measures worth Rs 1.5 trillion to 2.5 trillion. If these measures are implemented, the budget deficit will decrease by Rs 1.5 – 2.5 trillion.
