Special Report :
Pakistan’s journey towards economic stability continues under the watchful eye of the International Monetary Fund (IMF), as the nation navigates a complex web of fiscal challenges and structural reforms.
According to the State Bank of Pakistan (SBP)’s latest weekly update, the country’s foreign exchange reserves decreased by a marginal $6 million, settling at $9.10 billion as of June 7, 2024.
Despite this minor dip, the reserves provide less than two months of import cover, underscoring the urgent need for policy measures to bolster foreign income and curtail expenditures.
On a more positive note, reserves held by commercial banks rose by $175.4 million to $5.28 billion, bringing the country’s total reserves to $14.38 billion.
The stability of the Pakistani rupee, which edged down by a nominal Rs0.02 to close at Rs278.59 against the US dollar in the inter-bank market, suggests that the demand for the greenback is balanced by its supply within the domestic market.
This relative currency stability comes as Pakistan anticipates the next IMF loan programme, whose conditions are expected to influence future rupee-dollar parity.
A Cautiously Optimistic Outlook Economic indicators present a cautiously optimistic outlook for Pakistan.
Inflation, which had soared to 38 percent in May 2023, has significantly slowed to 11.8 percent over the past year, according to the Pakistan Bureau of Statistics as reported by Bloomberg.
This improvement is reflected in the prices of essential commodities such as wheat and fuel.
A kilogram of wheat, which cost more than 130 rupees ($0.47) in May 2023, is now priced at 102 rupees ($0.37). Similarly, fuel prices have declined from 288 rupees ($1.03) per litre to 268 rupees ($0.96) per litre.
The central bank’s foreign exchange reserves, which had plummeted to $2.9 billion in February 2023-barely enough to cover three weeks of imports-have now rebounded to over $9 billion, aligning with the six-year average.
The Pakistani rupee, after losing more than 60 percent of its value against the US dollar over the past two years, has somewhat stabilized around 280 rupees to the dollar.
Pakistani Stock Market Hits All Time High The KSE-100 index rose by 1,097.12 points, or 1.44 percent, reaching 77,305.28 at 11:04 am, up from the previous close of 76,208.16, according to data from the PSX portal.
Ultimately, the index ended the day at 76,706.77, an increase of 498.61 points or 0.65 percent from the prior close.
Structural Reforms and Taxation Challenges Finance Minister Muhammad Aurangzeb has highlighted the pressing need for structural reforms and an expanded tax base.
With a tax-to-GDP ratio currently below 10 percent, Aurangzeb emphasized the necessity of raising it to 13 percent within the next three years to ensure economic sustainability.
He pointed out that no country can sustain a 9.5 percent tax-to-GDP ratio without external assistance, stressing the urgency of broadening the tax base.
Aurangzeb also called for the elimination of the undocumented economy through comprehensive digitization, which would enhance transparency and reduce corruption.
Despite efforts, the Federal Board of Revenue (FBR) has yet to achieve desired levels of compliance and enforcement.
To address this, the government has introduced progressive taxes in the federal budget for fiscal year 2024-25, targeting high-income individuals and aiming to bring retailers and wholesalers into the tax net.
Efforts to mobilize the FBR workforce have seen around 31,000 retailers register under a new tax scheme, with further registrations and tax impositions set to begin in July 2024.
The re-launch of the Point of Sale (PoS) scheme aims to eliminate cash transactions, further enhancing tax compliance.
Future Directions and Youth Empowerment The government’s focus extends to the youth and the burgeoning Information Technology sector.
Recognizing Pakistan as having the third-largest freelancer population globally, the government has allocated substantial funds to improve digital infrastructure and create an enabling environment for youth.
With IT exports currently at $3.5 billion, there is potential to double this figure to $7 billion with appropriate support.
Additionally, the government has prioritized financing for SMEs, agriculture, and IT sectors, addressing the banks’ current lack of appetite for SME financing.
The Public Sector Development Programme (PSDP) has allocated 81 percent of funds to ongoing projects, with 19 percent earmarked for new initiatives, including those with foreign funding.
As Pakistan navigates its slow path to recovery, the combination of cautious optimism, necessary reforms, and international support presents a roadmap for sustainable economic growth.
The forthcoming IMF loan programme will be crucial in shaping the future trajectory of Pakistan’s economy, providing a framework for continued stability and development.