There are two common ways we can combat the fiscal deficit: increasing revenue through higher taxes and by more economic activity, or cutting expenses by cutting back on government-run programs.
Broader perspective of the Issues
Pakistan for the decades has been confronting with serious issues of fiscal deficit and current account deficit due to which the country has reached the verge of vulnerable economy and now Pakistan must take drastic decisions as already it is much belated.
The Policy leaders and experts from across the political spectrum must have to put forward a number of comprehensive plans that can reduce the long run debts and chalk out holistic strategy and strong foundation for future economic growth. By examining such comprehensive indigenous plans according to the set priorities, the policymakers and the public at large should gain a better understanding of what is required for the country, as well as what we have to get our objectives by putting out actions to combat the huge fiscal as well as current account deficit. Comprehensive plans may encompass generally in changes slowly in order to give people time to plan and to protect short term economic growth. While some other plans may rely more on reductions on aggregate spending and others might depend more on tax growth. We must keep in mind that Pakistan is an import oriented economy and its inflation is cost push inflation, not demand pull inflation which depicts general well-being and economic prosperity and increase in income and employment, whereas the cost push inflation only originates due to increase in cost of production with lower income and employment with overall gloomy and desperate economy. Our economy is gradually moving toward stagnation which means both inflation and unemployment are rising parallel and this can lead to recession in economy. The fiscal deficit and current account deficit are daringly increasing in tandem. The average Per capita income of the country has been reported drastically decreased to Rs. 300/- per day including cyclical and seasonal unemployment.
Pakistan’s Current Trade Deficit
Foreign exchange strapped Pakistan’s trade deficit has surged to a record USD 48.66 billion in the current financial year 2022-23 up from USD 30.96 billion in last financial year flatly 57 per cent jump. Pakistan’s import has been reported increased 43.45 per cent to USD 80.51 billion during current year from USD 56.12 billion in last year.
Immediate Actions To be taken
Constitution Of National Commission On Fiscal Reforms
It is the high time that in line with Simpson-Bowles Plan in the United States, the National Commission on Fiscal Reforms must be constituted in Pakistan on bipartisan approach to deliberate the issues of fiscal and current account deficit of the country at length by raising awareness of the stark projections of foreign debt and by putting forward a series of proposals designed to set the nation on a sustainable fiscal path so as to combat the hazardous current account deficit. The National Commission encompassing high expertise from National Assembly, Senate, Ministry of Finance, Federal Board of Revenue, Stakeholders and Businessmen from notable Chambers of Commerce & Industries representing all federal units and mainstream political parties of the country. The necessary legislation should be initiated and passed in National Assembly and Senate to formulate the laws for the purpose of constitution of such National Commission on Fiscal Reforms. The commission will deliberate the subject at length and give insight into this very crucial issue and chalk out the holistic strategy to combat both fiscal and current account deficit. The commission will materialize different pragmatic plans and capitalize the given opportunities and then explore the new avenues to raise the revenues and the GDP.
Some of the following key decisions must be taken up by the commission,
- The holistic strategy about subsidies to some crucial segments like electricity, petroleum products and fast consumer items to provide relief to white collar poor and lower class so that they can also play their healthy role in increase economic activities.
- The percentage raising revenue targets to GDP and percentage reduction in spending.
- To project the target of GDP growth in next five years.
- To project the target of reducing the debt servicing in next five years.
- Setting out the Tax Reforms, and simplifying the tax codes to raise the revenue.
- Stabilizing Social Security’s finances and strengthening the safety net for seniors.
- Transparency and Governance
- Eradication of Corruption and Red Tape to expedite the public projects
- Associated Legislation
- Best utilization of IMF Programs and all other foreign funding, loans and assistance.
- To upgrade the standards of technical education to increase the employment.
- To curtail the huge losses of PIA, Pakistan Railway, Pakistan Steel and others.
- To set desirable targets and plans to raise foreign remittances.
- To accelerate the facilities and talents to overseas Pakistanis.
- To negotiate for enhancing the employment opportunities for overseas Pakistanis.
Another Solution Initiative-Pakistan To Be A Documented Agrarian Country For Reformed Taxation & Revenues
This is the high time now when we must decide whether Pakistan is an agrarian country because after 75 years of independence we have still not decided the directions of our country. Despite all its limitations, the agriculture sector has still absorbed 44% of labor force and is yielding 23% of our GDP and only Livestock sector is producing 10% of the GDP. Therefore in order to strengthen the Agriculture and Livestock Sector, Pakistan must focus upon food grains, cash crops like cotton and sugarcane, cultivation of palm oil, enhancement of milk & meat production and to give rewarding incentives to Livestock breeders and set forth the specific targets and then we must achieve them. This is how we could enhance the contribution of Agriculture and Livestock in national economy. After desirable strengthening we can move forward to document the economic activities in this combined sector, so that proper and substantive reformation of taxes in Agriculture and Livestock sector could be designed and then be supported with necessary legislation. Once we establish the Agriculture sector then the agricultural based industry will automatically be established, which will gear up our revenues and this will be another one step ahead to combat the huge and widening fiscal deficit.
All challenges can only be met if renowned Lawmakers, Economists and Policy Organizations from across the political spectrum sit together and demonstrate leadership to put everything on table. They should deliberate the issues at length to chalk out comprehensive plans to achieve long-term fiscal sustainability. Although this is a difficult task but it must have to be done to improve the efficiency of government and strengthen the economy of the country.