Experts at Geo News’s exclusive Great Debate on the economy on Sunday were in utmost consensus as they stressed that “economic and political stability is the cornerstone for the country’s recovery from its downtrodden state of affairs”.
The panel, comprising prominent economists, business tycoons, analysts, and industry leaders, broke down the many-sided challenges and suggested a wide range of strategies to guide Pakistan out of the belly of the beast of economic insecurities.
Faced with chronic mismanagement, Pakistan’s economy has found itself on the brink, challenged by the Covid-19 pandemic, the effects of the war in Ukraine and supply difficulties that fuelled inflation, as well as record flooding that affected a third of the country in 2022.
Arif Habib, a seasoned economist and chief of the Arif Habib Group, set the tone of the debate by asserting that economic stability must be prioritised.
Criticising the political leadership for defaulting on the necessary reforms, Habib said this had led to continued economic woes.
Highlighting the impact of a stabilising rupee, Habib noted that it resulted in a subsequent reduction in inflation. The business mogul said that agricultural taxes could generate up to Rs1200 billion, which could then provide relief to other sectors.
The financial and real estate sector baron stressed that provincial acceptance of agricultural taxes would be a meaningful achievement and pointed out that even the President of Pakistan [Asif Ali Zardari] has recognised the necessity for large landowners to contribute their share in revenue generation.
Habib also raised alarms regarding the excessive burden on salaried individuals and the challenges in tax collection from retailers, which has been shifted to manufacturers.
He preferred growth in remittances over exports and encouraged overseas Pakistanis to send more funds home, contending that improvements in domestic conditions would naturally incentivise their return.
Furthermore, the business leader questioned the efficacy of foreign investment, urging the government to create more opportunities within the country.
With its foreign currency reserves dwindling, Pakistan found itself in a debt crisis and was forced to turn to the IMF, obtaining its first emergency loan in the summer of 2023.
Asif Peer, another panellist and CEO of Systems Limited, a global IT firm, underscored the critical role of middle management, describing it as the backbone of the economy that needs empowerment and confidence.
Peer played up the importance of cybersecurity, data protection, and electricity distribution, dubbing them as critical for progress.
Registering his genuine worries over the unpreventable exodus of skilled workers and the pressure [to immigrate] faced by those choosing to stay, Peer put all his weight behind a secure and stable environment to harness the potential in the IT sector.
Asif Inam, Chairman of All Pakistan Textile Mills Association (APTMA), zooming in on the energy sector, slammed the high electricity prices, calling them a major issue, responsible for 70% of economic problems hindering the growth.
Calling for projects under the Public Sector Development Programme (PSDP) to address electricity concerns, Inam said that the post-budget scenario had worsened these issues to a greater extent.
He minced no words criticising the lack of new dams and the complications arising from Independent Power Producers (IPPs).
Mohammad Sohail, CEO of Topline Securities Ltd, said that while the direction of the budget was correct, there were questions about tax implementation.
The brokerage chief said things were likely to improve for Pakistan in three to four years, but the challenge at hand was to avoid a default and boost foreign exchange reserves to at least $25 billion.
Sohail stressed the necessity of the International Monetary Fund (IMF) deal and the goal of achieving 5-6% economic growth to match the increase in population.
Last week, Pakistan and IMF reached a three-year, $7 billion bailout , according to the Washington-based institution. The new programme, which needs to be validated by the fund’s Executive Board, should enable Pakistan to cement macroeconomic stability and create conditions for stronger, more inclusive and resilient growth.
Highlighted the paramount importance of political stability, Sohail noted that it was an elementary concern for foreign investors. He said that in the short term, Pakistan direly needed political stability to foster economic confidence and attract foreign direct investment.
Sohail asserted that the pronounced political division had greatly angered people and that the economy was actually in trouble because of politics.
Amar Habib Khan, assistant professor of practice at the School of Business Studies, IBA, pointed out the consumption-driven nature of 99% of the economy and the detrimental effect of a 29% corporate tax on investment.
He regretted the reliance on government guarantees and the lack of market direction. Khan noted that apart from the IMF, Pakistan has limited loan options and underlined the need for agricultural and IT sector development.
Muhammad Ali Tabba, CEO of Lucky Cement, discussed the potential in sectors like mining and construction and the need for investment in these areas.
He called attention to the security issues in regions like Khyber Pakhtunkhwa and Balochistan, where fencing around hotels reflects the prevailing dangers.
Tabba contended that investors were deterred by these risks and stressed the need for reducing government interference in the economy. He called for bureaucratic reforms, digitalisation, and a charter of the economy to ensure policy continuity across different governments.
Ehsan A Malik, Chief Executive Officer of Pakistan Business Council (PBC), chimed in that political stability was paramount, with external investors frequently questioning it.
Malik also bluntly called for the immediate privatisation of white elephants [loss-making state-owned enterprises] — which are a drain on the national exchequer.
The consensus among the panellists was crystal clear: Pakistan’s path to economic recovery rests on bringing about stability — political and economic — implementing comprehensive reforms, and creating a secure, investor-friendly business environment across the country.
The latest bailout, coming to Pakistan in the form of loans, follows a commitment by the government to implement reforms, including a major effort to broaden the country’s tax base.
In this regard, the authorities plan to increase tax revenues through measures of 1.5% of GDP in FY25 and 3% of GDP over the programme.
In particular, the recently approved FY25 budget targets an underlying general government primary surplus of 1% of GDP (2% in headline terms).
Revenue collections will be supported by simpler and fairer direct and indirect taxation, including by bringing net income from the retail, export, and agriculture sectors properly into the tax system.
At the same time, the FY25 budget provides additional resources to expand social protection by increasing both the generosity and coverage of BISP, education, and health spending.
In a nation of over 240 million people and where most jobs are in the informal sector, only 5.2 million filed income tax returns in 2022.
