Mian Zahid Hussain, President of Pakistan Businessmen and Intellectuals Forum (PBIF) & All Karachi Industrial Alliance (AKIA), Chairman National Business Group Pakistan (NBG), Chairman of FPCCI Policy Advisory Board and Former Provincial Minister of Information Technology, stated that Pakistan’s economy is now at a crucial milestone from where sustainable economic development is possible.
He noted that, according to the recently released economic survey, average inflation over the past 11 months has dropped to 6.7 percent, while the dollar exchange rate has remained stable at Rs 280 for the last three years. The central bank has significantly reduced the interest rate, bringing it down from 22 percent to 11.5 percent. Furthermore, foreign exchange reserves are at a four-year high, and remittances are expected to reach a record $42 billion by the end of the current fiscal year. In addition, Pakistan has successfully re-entered the international Eurobond market after a four-year hiatus.
Mian Zahid Hussain said that the dark side of the economic situation is that exports have been stuck between $25 billion and $30 billion for the past 20 years, causing the export-to-GDP ratio to decline from 16 percent to 10 percent. The investment climate is also unsatisfactory, as Foreign Direct Investment (FDI) declined by 31 percent during the first ten months of the current fiscal year. The unemployment rate in the country has reached 7.1 percent, meaning approximately 5.9 million Pakistanis are jobless. Furthermore, the savings rate is at a three-decade low, with citizens able to save only 6 percent of their income.
Mian Zahid Hussain further added that the government has attempted to provide some relief in the recent budget, which includes corporate tax relief and extending the income tax exemption on IT exports for another three years. However, economic experts and industrialists believe that these measures alone will not achieve the desired targets. The country’s Rs 12 trillion cash economy is a massive challenge, from which a conservative estimate suggests Rs 4 trillion in sales and income tax could be extracted. According to the FBR, untaxed transactions worth Rs 7.1 trillion have been identified which may be brought into the tax net through digitization. He pointed out that the minimum tax rate on turnover for exporters has been increased from 1 percent to 1.25 percent, while the corporate tax rate stands at 29 percent, which is much higher compared to other countries such as Turkey (9 percent), Bangladesh (10-12 percent), Sri Lanka (15 percent), and Vietnam (20 percent).
Mian Zahid Hussain emphasized that for the future, it is imperative that the government adopts a 3 to 5-year long-term economic vision and creates consistency in economic policies across year-to-year budgeting. Economic development requires at least a 5 to 6 percent growth rate and a 20 percent savings rate. Pakistan’s position in human development indicators (HDI 0.544) is among the lowest in the world (ranking between 168 and 193), making long-term reforms in the health and education sectors absolutely inevitable. The government must bring the undocumented economy into the tax net to reduce the burden on taxpayers, especially the salaried class and the documented corporate sector, and simultaneously cut government expenditures, including by implementing pension reforms. Export-led growth is the only path to sustainable development, and providing a favorable environment for industrialists must be the government’s top priority.
