Pakistan Economic Problems and their Solutions.

 by m.a.sohail

Pakistan is a country where more than half of the population lives below the poverty line. Pakistan's economy is facing adverse situation due to many reasons. There are reasons for the decline

1- Inflation in Pakistan

Inflation peaked at 20% in 2009 and has now fallen to just below 7% at the end of 2012. However, many expect inflation to rise above 10% again due to cost factors.

Causes of inflation in Pakistan include:

    a. Rising energy prices.

    b. Rising food prices. Agriculture is one of the mainstays of Pakistan's economy with 45% of the workforce employed in agriculture. However, the country is facing food shortages, which is pushing up food prices.

    c. There are concerns that even the financing of the budget deficit could create inflationary pressures.

Weak growth in food productivity means that production in Pakistan is growing more slowly than in other countries. The consequence of this is that food prices rise faster than production, leaving people in food poverty. Rising food prices are a real problem for poorer households who do not have the rising incomes to cover higher costs. A recent survey suggests that 50% of households are “food insecure”.

In the short term, inflation could be dealt with by demand-side policies – deflationary fiscal policy and higher interest rates. However, this would damage Pakistan's fragile economic growth. With a growing population, there is a need to increase economic growth rather than cause a recession.

Supply constraints and cost-increasing factors – rather than excess demand – appear to be the root cause of Pakistan's inflation. In the long term, it is necessary to try to reduce these bottlenecks and increase the productivity of agriculture and industry.

2-Tax deficit and budget deficit

Pakistan has some of the lowest tax revenue as a % of GDP in the world. Pakistan's tax revenue is just 9.1% of GDP in 2011. Tax evasion and avoidance is widespread and even leading politicians do not file tax returns. With limited tax revenues, the government tried to prevent the budget deficit from growing. The budget deficit in 2011 reached 8% of GDP. (The Economist on Pakistan's Economy) Although total debt to GDP is only close to 60%, Pakistan is struggling to finance its debt domestically – hence the rapid growth in external debt. The increased deficit and external debt increased the cost of debt interest payments – and thus a larger share of limited tax revenue.

There is a lot of room to increase tax revenue and plug the budget hole, but successive governments have tried to take over the vested interests of society.

3 supply-side constraints

With tax revenue of just 9% of GDP, Pakistan has very limited resources to spend on infrastructure, healthcare and education. The main areas of government spending are on the military, interest payments and energy subsidies. The government pays only 0.5% of GDP for healthcare, which is very little by international standards. Supply constraints in energy, transport and education led to stagnation in productivity growth. This creates both cost and inflationary pressures and limits the rate of economic growth. In particular, the IMF states: “A key structural impediment to growth is the problems in the energy sector, which have led to widespread and unpredictable power outages.

4- Overpopulation,

If we look at overpopulation, then we find that we have a bunch of people with few resources. A few years earlier the population was very huge. The government has given some attention to the problem and now the population is under control. over population has many disadvantages like low literacy, lack of employment, no better facilities for food and shelter and unfavorable health facilities.

5- terrorism,

Pakistan is facing the worst situation of terrorism. Because of this war on terror, we have seen constant bloodshed and refugees in poor condition. The problem is the presence of millions of people without homes, food and health. In addition, global investors are not investing in this uncertain country. Pakistan was a world market for investors and economists like India. But now businessmen cannot invest in this country due to constant terrorist activities. Especially in the northern and Sindhi areas, there is a law and order condition in the state. There are kidnappings, bank robberies and bomb blasts.

6- Bad governance

Poor governance is still a major problem in the state. Our leaders have bank accounts in foreign countries. They invested in other countries. They own companies and have stakes in such highly developed nations. That is the kind of insincerity towards the nation. Moreover, our political representatives have an unbalanced approach to the state. Few regions are highly developed with all facilities while few regions are very neglected. This creates anarchy and impatience in the state. Our leaders must be patriots for the whole country. There is still a need for pure democracy in the state.

7- Low literacy rate

More women need to be empowered to get the best economy. Women are more than men. Only 1 person supports the whole family. Some are children, some are seniors, some are ladies, then who is to earn. 1 person cannot support the whole family. So there must be participation of young ladies in the flow of the state. So that this country can have more manpower and creative minds. When we teach a man, he can learn by himself, but when we teach a woman, she prepares the whole family. That's the difference.

Conclusion

It's not all bad news. Inflation has fallen a bit, economic growth is positive. Pakistan has a young population which should be an asset. The country has great potential that is not being realized. The first step would seem to be to increase tax revenues, reduce the budget deficit and solve the cultural problem of not paying taxes. This will allow more investment in supply-side improvements, which would be the beginning of improvements in supply-side factors.