Good move for the economy

Good move for the economy

These countries used the loans to grow their economies. So, it took them very little time to stabilise themselves. Similarly, if you have the same determination as these countries have, you too can do exceptionally well.

It is a basic rule that if you take a loan from anyone, you have to repay it on time. Let me explain my point here with an example. If you have taken a loan of $100 million and the cost of this loan is 5%, the loan will prove to be profitable only if it earns you more than the value of the loan.

That way you will have two benefits from this loan. First is the value of your loan and second is the significant increase in your wealth.

Let’s take a look at this example of your country’s economy for a moment. Circumstances will look different. We have been borrowing but we are taking a new loan to pay off the previous debt. As a result, we don’t build wealth.

Our main issues are management and governance of the country. In the first 40 years, the World Bank helped us in developing the country and to grow at 6% to 6.5%. However, by raising this point, we are not doing any justice to our own institutions.

The current government seems quite serious about economic issues, which is reflected in various things. Prime Minister Imran Khan has recently announced a relief package which includes a reduction in petrol and electricity prices as well as internships with compensation for the youth to promote employment.

One of the commendable measures is the amnesty scheme linked to the industrial setup, which is a good move.

However, we must be cautious in that the amnesty is restricted to the exporting industries and is not extended to the import sector. The current account deficit is already widening very fast and any amnesty for the import sector will encourage the importers and lead to a further increase in the import bill.

At the same time, we need to be flexible in policies, especially the policies made for investors. The policies should be for the long run and instil confidence in investors, which will help utilise resources for doing business, generate tax revenue and push the country’s economic growth.

Needless to say, the world has gone through many disasters over the past few years. Among these, Covid-19 tops the list. The pandemic has devastated many major economies of the world as well as swallowed millions of human lives.

Pakistan is also a victim of the pandemic, which hit the economy hard and destroyed many businesses.

Owing to the surging crude oil prices in the world market, Pakistan’s trade deficit has increased. In order to reduce the deficit, it needs to go for import substitutes.

However, many sectors of the economy are devoid of investment. We are importing petrochemicals, crude oil and petroleum products. We have to search for alternatives on an emergency basis.

On the other hand, emergency measures should be taken to reduce the country’s revolving debt. Needless to say, the revolving credit is growing and the rupee devaluation has played a big role in this.

On the other hand, the energy sector has not shown any significant improvement, which is also a reason for the rise in revolving loans. At the same time, the average electricity tariffs have gone up 30% in the last three years.

The government, however, did revisit the contracts made with the independent power producers (IPPs), which led to savings in capacity payments. However, the loans have not decreased.

Another major area of concern is the energy pricing. There is a big difference between the prices of locally produced gas and international gas. We can think of deregulating the market and wooing investors to ramp up foreign direct investment in the country.

We need to work on the fiscal side as well. The steps taken so far to address the fiscal challenges are not enough and more needs to be done.

The government can consider taxing the rich class more instead of imposing additional taxes of Rs350 billion on the common man. We need to think seriously about how long we will continue to rely excessively on indirect taxes.

How long we will continue to go to friendly countries and multilateral lenders, like the International Monetary Fund, for assistance, is a question in the minds of many. Eventually, we have to stop somewhere and generate enough finances themselves.

One of the basic principles of the world is that unless there is income tax, there will be no justice in society. So, we have to ponder now and come up with a comprehensive strategy to become an independent state.

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