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Pakistan on the brink of default, again

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Pakistan’s time is running out. For decades, the country has run a system that needs near-constant external assistance. The system doesn’t deliver prosperity outside a tiny elite. Real incomes are, at best, stagnate. We barely export or save. If there is a strategy, it is waiting for someone to invade Afghanistan to extract geopolitical rents from them.

Underlying these decades-long challenges is a fundamentally changing society. For one: over the next 28 years, Pakistan will add about 132 million more people above its current population size. Pakistanis also now live increasingly in urban areas which reshapes how people interact with each other – opening new avenues for collective action and greater demand for public services. Add to this increased access to technology. The country is changing even if the economic system that governs them remains the same.

The changing dynamics demand sustained economic growth to improve lives, but our current system doesn’t allow growth. Whenever the economic growth rate exceeds 4-odd%, Pakistan’s import bill skyrockets pushing the country into a balance of payments crisis. This is a fundamental constraint in Pakistan’s growth model: nothing short of a complete break from the current trajectory will work.

Today, Pakistan is on the brink again. While a sovereign default is unlikely, what is clear is that Pakistan’s survival once again depends solely on the generosity of its few allies. This generosity might be eventually forthcoming allowing us to kick the bucket down the road for a few months – but then what? What happens a few months from now when once again we need more money to pay for imports or service our debt?

We need a radical break. There must be an immediate realization that the current economic system neither delivers growth for its citizens nor is stable enough to be maintained. Critically: even those who benefit from the current economic system, must realize that the system isn’t sustainable – even for growing their wealth. A different pathway requires a pro-growth coalition that pushes for reforms that can make real gains in Pakistan’s productive capacity.

What should such a reform agenda prioritize? I suggest three actions. First: Pakistan must discourage the capital stuck in real estate. Putting a large chunk of domestic savings into real estate takes capital away from sectors that can contribute towards exports (plots can’t be exported, alas). A great way to do this is by levying an annual tax on urban land. Not only would this raise revenue for public services but help allocate capital towards tradable sectors.

Second: We need deliberate and significant efforts to improve female labour market participation. Currently, only two out of 10 adult women are in the labour market; this is below countries of similar income levels. One way to do so is by investing in urban transport systems that would disproportionately benefit women as they face the highest mobility barriers.

Third: Pakistan should reduce policy-induced market distortions that are often in place to benefit vested interests. One example are the import duties that incentivize firms to sell domestically rather than attempt to innovate and compete abroad (a recent report by the World Bank calculates that a 10% import duty ups the profitability of selling domestically as opposed to exporting by 40%). By making the market a level playing field, we can incentivize firms to innovate and compete globally.

Pakistan is on a path to the abyss. In 1990, a child born in Pakistan would expect to live longer than a child born in India or Bangladesh. Today, that has been completely reversed. You’re better off being born in Dhaka or Chennai, than Lahore. This trajectory will continue if we don’t do something differently. Time is running out.

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Finance Minister: A “big” IMF program is coming for Pakistan.

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Speaking at the Karachi Stock Exchange ceremony, the Finance Minister announced that meetings with IMF representatives would take place in Washington on April 14 and 15.

He applauded the caretaker government’s effort to bring about economic stability and predicted that the nation’s economy would stabilize with improved economic policies.

Muhammad Aurangzeb emphasized that in order to move the country’s economy toward stabilization, structural reforms must be implemented.

He restated that the nation’s recovery from the economic crisis depends heavily on the stock market. The stock market is, nevertheless, trending upward.

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Pakistan is still classified as a secondary emerging market by the FTSE.

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The nation could perhaps be demoted, according to the worldwide index provider, since its index weight has decreased over the previous few years.

Pakistan’s market capitalization peaked in 2017 at $100 billion, but it fell to $21 billion by 2024, according to a Bloomberg research.

It did, however, state that Pakistan’s standing as a secondary emerging market will remain unchanged due to favorable political changes brought about by the establishment of a stable government.

Bloomberg saw Shehbaz Sharif’s election as prime minister, who is open to reform, as a step in the right direction for the nation struggling financially.

Shehbaz Sharif, the president of the Pakistan Muslim League-Nawaz, was chosen on March 4 to serve as the country’s 24th prime minister.

With 201 votes, PM Shehbaz defeated Omar Ayub Khan of the Sunni Ittehad Council (SIC) by 92 votes.

over the economy, earlier this month, Pakistan and the International Monetary Fund (IMF) came to an agreement at the staff level over the second and last review conducted under Pakistan’s Stand-By Arrangement.

The IMF secured a staff-level agreement with Pakistan on the second and final review of the nation’s stabilization program, which is backed by the IMF’s US$3 billion (SDR2,250 million) SBA authorized, according to the official statement released by an IMF team led by Nathan Porter.

The remaining US$1.1 billion (SDR 828 million) of SBA access will be made available following the IMF Executive Board’s approval of the deal.

It was reported shortly after the February 8 election that the newly elected PML-N-led government intended to apply for a new IMF credit package.

Pakistan is anticipated to pursue a $6–8 billion loan program from the global lender, and the IMF will be contacted right once to begin negotiations for this. The sources went on to say that the IMF would have tighter requirements this time.

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PM Shehbaz Sharif: “A plan to digitize the tax system is underway.”

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In an address to the All Pakistan Newspapers Society delegation in Islamabad today, the prime minister announced that plans were in motion to update the tax collection system.

The prime minister added that efforts are underway to broaden the revenue base and that the Federal Board of Revenue (FBR) is fully digitizing.

He emphasized that the Tax Excellence Awards were a recent initiative by the government to support female entrepreneurs, exporters, and engaged taxpayers.

The government’s priorities, according to the prime minister, are institutional changes, austerity, domestic and external investment, and privatization of government-owned businesses.

Praiseing the media’s contribution to public awareness-raising and good governance, he called on the sector to successfully communicate the benefits of economic stability under SIFC.

Calling fake news a major problem, he emphasized the need for cooperation to combat it. Additionally, he extended an invitation to the press to back Pakistan’s administration in its endeavors for the country’s growth and well-being.

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