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Pakistan’s Economy: Challenges & Opportunities

IK's Govt. has to take bold steps to improve the economic situation of Pakistan

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Pakistan, officially the Islamic Republic of Pakistan, is a country in South Asia. It is the sixth-most populous country with a population exceeding 212,742,631 people. Currently Pakistan is facing serious financial crunch due to local and foreign debts and its currency is devaluating against US dollar in the domestic market.  This deteriorating situation of Pakistan’s Economy resulting in increase of oil prices by 9.5pc and electricity prices also.

Now the blame game is at peak current government which is new defending themselves by putting entire blame on the prior ones and previous government accusing new government for this economic blight.

Currently, Pakistan’s economy is going through a rutted patch. Economic parameters are dilapidated while others remain somewhat sluggish. This is resulting a slow economic growth and increasing fiscal disparity hence restricting government to outfit the needs of growing population.

Pakistan’s Economy: According to Bloomberg, the Pakistani rupee was Asia’s worst- performing currency this year.

Pakistani currency has been diminishing since December 2017 and has lost almost 3.7pc of its value. In December, the value of rupee per US dollar was almost 105 but it observed a sheer rise reaching 131.20 in October 2018. This is showing worse macroeconomic situation and creating more and more problems for our economy.

According to Bloomberg, the Pakistani rupee was Asia’s worst- performing currency this year.

According to IMF report Pakistan’s external debt is expected to climb up to 103 billion dollars by June 2019. Pakistan’s public debt would remain higher than the limit prescribed in the revised Fiscal Responsibility and Debt Limitation Act. Outflows due to CPEC have lofty current account deficit and risen external debt servicing and this may lead to higher external financing needs in the future. The countries have to pay $12 billion in first half of 2018 as per its liabilities.

Gross fiscal financing needs will likely exceed 30pc of GDP from 2018-19 onwards, in part dazzling increased debt service compulsions.

The IMF also said that:

“While the level of external debt has remained moderate, continued mobilization of external financing at favorable rates could become more challenging in the period ahead against the background of rising international interest rates and increasing financing needs”.

Moreover, our foreign exchange reserves are corroding. Foreign exchanges reserves hold by the State Bank of Pakistan were dwindling by 3pc on a weekly basis, according to data released by the central bank in the month of May. The decrease in reserves was accredited to external debt servicing and other official payments.

An officer at Insight Securities Pvt in Karachi has said:

“It was becoming ever more difficult to manage the local currency at the current level with tumbling forex reserves’.”

The nation’s current-account shortfall had become extensive and foreign debt repayment commitments are also rising. CPEC investments could accelerate the swelling of related external payment commitments, worsening Pakistan’s aptitude to repay at a faster pace. Furthermore, faster diminution of foreign exchange reserves will have unfavorable effects on economic growth.

The World Bank states that Pakistan’s inflation is likely to augment in fiscal year 2018-2019 and will remain high till fiscal year 2020. The upshot of the devaluation of Pakistan rupee against US dollar in the local market incidentally overlap with a rise in the crude oil prices in the global market resulting in an upward trend in oil prices from January 2018.

According to IMF report Pakistan’s external debt is expected to climb up to 103 billion dollars by June 2019.

However, there is no major change in acute issues like electricity and gas shortage, unemployment and poverty. The supply of power to industrial and residential consumers is expected to improve considerably with new power plants likely to become operational in 2018 and beyond. Moreover, developments like import of liquefied natural gas (LNG) to improve the shortage of gas for industrial sector and the addition of a second LNG terminal at Port Qasim would go a long way in boosting the economy.

Recommendations:

How this Govt. can improve the economy

Although the situation is too rigid but government have to take some bold decisions. Following are some steps line up to cope up with the declining scenario of Pakistan’s Economy.

  • Money Laundering is Pakistan’s top rated issue as annually $10 billion laundered from Pakistan damaging economy. Steps must be taken to stop this issue.
  • Energy crisis and bribes in department preventing peoples to invest in Pakistan special measures must be taken to avoid such issues in future.
  • Increasing exports and decreasing imports can bring favorable balance of payments hence stabilizing the economy. Facilities must be provided to exporters like un-interrupted supply of power, relax in taxes and duties etc.
  • Pakistan is an agricultural country but increasing cost of production averting farmers from doing their business. Cheap electricity and fertilizers must be provided to capable them to compete in international market which will bring dollars in country.

Read Also: How to Save and Invest Money Wisely

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