By: Sidra Shah
Despite rising deficits, Pakistan’s tax revenue was only 13 percent 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 percent 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, andbujh taxes on petroleum products, as announced by the previous Pakistan Muslim League-Nawaz (PML-N) government.
“PAKISTAN ‘S 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 percent 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, and with the current Pakistan Tehreek-e-Insaaf (PTI) government enjoying internal institutional consensus on the national agenda, Pakistan must focus its attention on resolving its economic woes before it finds itself on the shores of bankruptcy.Current State of the EconomyIn 2019, Pakistan finds itself facing a dire macroeconomic crisis. It is spending more on imports than it receives on exports, with its current account deficit having risen from $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. 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 percent. 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.
