Pakistan once more fails to fulfill International Monetary Fund (IMF) loan conditions, validating India's stance.
Pakistan's economy is grappling with a series of structural and fiscal issues, as highlighted by the missed IMF targets. These challenges include low and volatile large-scale manufacturing growth, an increasing fiscal deficit, a low tax-to-GDP ratio, heavy debt burden, dependence on external financing, political and institutional instability, and depleting foreign reserves and large trade deficits.
The weak industrial growth in Pakistan is impeded by cost and policy challenges. The country's large conglomerate, military-linked businesses, pose significant risks to policy implementation due to their entrenched role in economic affairs.
Pakistan's fiscal woes are exacerbated by a narrow revenue base with high debt costs, hampering fiscal consolidation. The country's fiscal deficit is driven by low tax revenues, high public spending on defense and subsidies, and soaring debt servicing costs. The government's revenue collection fell short this year, failing to collect 12.3 lakh crore rupees in total revenues.
The unorganised sector in Pakistan remains largely unchecked, with the failure of the Tajir Dost Scheme. The scheme, aimed at taxing retailers, generated only 50 billion rupees, widely described as a failure in Pakistan's Express Tribune.
Pakistan's debt burden remains extremely high due to repeated bailouts, making it a "too-big-to-fail" debtor for the IMF. The country's continued dependence on external aid is underscored by repeated failures to meet conditions set by the IMF.
Political and institutional instability undermines economic reforms in Pakistan. Governance issues, policy inconsistency, and military influence raise doubts about the durability of reforms and investor confidence. Even with a civilian government in power, the army continues to exert deep influence over domestic politics and economic policy. The army plays a central role in the Special Investment Facilitation Council of Pakistan.
India has expressed concerns that inflows from international financial institutions could be diverted to military or state-sponsored cross-border terrorist activities. At the last IMF meeting, India's representative Parameswaran Iyer said, "This is a serious gap highlighting the urgent need to ensure that moral values are given appropriate consideration in the procedures followed by global financial institutions."
Despite these challenges, Pakistan's external reserves have improved recently to over $14 billion. However, the country remains vulnerable to external shocks and relies heavily on IMF and bilateral financing, with risks if countries like Saudi Arabia or China withdraw support.
In conclusion, Pakistan's structural issues revolve around weak industrial growth, a narrow revenue base with high debt costs, and vulnerabilities from political instability and dependence on external aid. These challenges have contributed to missing IMF targets and delayed economic stabilization.
- The DEFi sector in Pakistan may encounter obstacles due to political and institutional instability, which undermines economic reforms and investor confidence.
- The general-news outlets often report on Pakistan's economy, highlighting the country's fiscal deficit driven by low tax revenues, high public spending, and soaring debt servicing costs.
- The business community is closely watching Pakistan's economic situation, with concerns about the impact of the country's high debt burden and dependence on external financing on investment opportunities.
- The financial stability of Pakistan's economy is often discussed in global financial forums, as India has raised concerns about possible diversion of inflows from international financial institutions to military or state-sponsored activities.
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