Muhammad Faiq Shah
In the contemporary global economic system, many developing nations, including Pakistan, rely on external financial support to stabilize their economies. The International Monetary Fund (IMF) and other multilateral institutions have often been a lifeline for Pakistan, providing much-needed financial assistance to cope with fiscal deficits, inflation, and external debt crises. However, the reliance on external entities can result in stringent conditions that often lead to domestic policy challenges, increased debt, and economic vulnerability. This raises an important question: Can Pakistan achieve sustainable development and prosperity without the assistance of institutions like the IMF? The answer lies in reshaping economic policies, prioritizing internal resources, and pursuing innovative solutions.
One of Pakistan’s foremost economic challenges is its low tax-to-GDP ratio, which hinders revenue generation and forces the government to rely on external borrowing. As of 2023, Pakistan’s tax-to-GDP ratio was approximately 9.5%, one of the lowest in the region, compared to India’s 17% and Bangladesh’s 9.9%. This inadequate revenue generation pushes the country towards borrowing and external financial support. A significant portion of Pakistan’s economy operates in the informal sector, accounting for 35-40% of GDP, according to the World Bank. By formalizing this sector and improving tax compliance, Pakistan can tap into previously untaxed areas. Formalizing just 20% of this informal economy could increase government revenues by up to 2-3% of GDP. Implementing a progressive tax system that ensures the wealthiest 10% of the population, who control 60% of the nation’s wealth, contribute fairly, could generate an additional PKR 1 trillion annually. Additionally, digital tax collection has already led to a 17% increase in tax returns in 2022 compared to the previous year, showing the potential for further improvement through technological solutions.
Pakistan’s trade deficit remains one of its most pressing economic concerns. In the fiscal year 2023, the country’s exports stood at $31.8 billion, while imports were $58.7 billion, resulting in a trade deficit of $26.9 billion. To move towards sustainable development, Pakistan must focus on an export-led growth strategy. Diversifying its export base is critical, as textiles currently account for 60% of exports. Pakistan’s tech exports were only $2.6 billion in 2022, compared to Vietnam’s $96 billion in 2020, highlighting the need to prioritize tech-based goods. Improving agricultural productivity is another key factor. Currently, Pakistan’s wheat yield is 30-40% lower than countries like Egypt and the United States. Increasing productivity through modern agricultural practices and efficient water management could lead to significant savings. For example, Pakistan’s water scarcity crisis is expected to worsen by 2025, but adopting water-efficient practices such as drip irrigation could mitigate the problem and save the economy billions.
With a median age of 22.8 years, Pakistan has a young population that could be an economic asset. However, 58% of Pakistan’s youth is unskilled, limiting their potential to contribute to economic growth. Pakistan’s education expenditure is currently only 2.8% of GDP, compared to the global average of 4.5%. By increasing this to at least 4%, the country could drastically improve access to quality education, particularly in STEM fields, similar to how South Korea invested in education and saw its GDP grow from $2.7 billion in 1960 to $1.6 trillion in 2020. In addition, Pakistan spends only 1.2% of GDP on healthcare, while the World Health Organization recommends at least 6%. Increased spending on healthcare can lead to a healthier, more productive workforce, potentially increasing economic output by 2-3% annually.
Pakistan’s energy crisis is a major impediment to growth. The country spends $14 billion annually on energy imports, while energy shortages cost the economy an estimated 2-2.5% of GDP each year. Pakistan has vast untapped renewable energy potential, with 50,000 MW in wind energy and over 2.9 million MW in solar energy. However, the country utilizes less than 5% of its renewable energy potential. Scaling up renewable energy could not only reduce the import bill but also create approximately 300,000 green jobs. Additionally, reducing energy wastage by upgrading transmission infrastructure could save up to PKR 200 billion annually, according to the World Bank.
Corruption remains a significant challenge for Pakistan, costing the economy 5% of its GDP annually. Strengthening institutions like the National Accountability Bureau (NAB) and promoting digital governance could reduce corruption and improve economic efficiency. For example, e-governance in Estonia saves the country 2% of GDP annually. Pakistan could potentially save PKR 500 billion annually through the digitalization of public services. Strengthening public institutions to ensure transparency could add an additional $7-8 billion to Pakistan’s economy annually by reducing corruption by just 2%.
Lastly, Pakistan’s national savings rate is just 11-13% of GDP, compared to an average of 30-35% in emerging economies. Encouraging domestic savings and investments could reduce reliance on external loans. Expanding financial inclusion, where currently only 21% of the population has access to formal banking services, could mobilize up to PKR 1 trillion in untapped capital. Strengthening capital markets and improving corporate governance could also attract significant investment, reducing the need for external financial support.
In conclusion, achieving prosperity and development without the IMF or other external support is a challenging yet achievable goal for Pakistan. The statistics indicate that by focusing on domestic reforms, fostering export-led growth, investing in human capital, promoting energy independence, and reducing corruption, Pakistan can significantly enhance its economic performance. By adopting innovative solutions and utilizing its internal resources effectively, Pakistan can chart a path to self-reliant and sustainable economic development.
Muhammad Faiq Shah is a businessman, political figure, and dedicated philanthropist. He can be reached via Email: [email protected]
