The Pakistani Rupee (Rs) has settled at Rs160 to the US dollar ($), falling over 32% in just one year. At the end of March 2019, Pakistan’s total debt and liabilities reached Rs35.094 trillion and has continued to rise with the country’s budget deficit. Within the first nine months (July-March) of the current fiscal year, and under the rule of new Prime Minister Imran Khan, the total debt and liabilities have gone up by Rs6 trillion.
In June 2019, the Islamic Republic of Pakistan received USD 400 million from the World Bank in the hope that Pakistan will make reforms to enhance tax revenues and reduce compliance cost to provide better services to the public. The purpose of the fund is to simplify the tax regime and strengthen tax and customs administration. The World Bank has also committed to support Pakistan’s Federal Board of Revenue with technology, digital infrastructure, and technical skills.
The World Bank said that Pakistan’s revenue performance was 12.9% in the 2017-2018 fiscal year, stating “it is still lower than the level needed by developing countries, of at least 15% of GDP, to fund basic government functions and provide services to people”.
On July 3, 2019 the International Monetary Fund (IMF) approved US$6 billion to Pakistan as a 39-Month Extended Fund Facility Arrangement. The objective of the economic reform program is to enable the Pakistani economy to find sustainable and balanced growth, and increase its per capita income. The decisive fiscal consolidation is designed to help reduce public debt and build resilience to see that the most vulnerable groups within the society are supported and lifted out of poverty. Further loans and funds are expected, including from the Asian Development Bank that is currently reviewing a $3.4 billion loan for the country. All this is despite Pakistan’s additional borrowing from China, Saudi Arabia, Qatar and the United Arab Emirates (UAE), who have pledged to deposit and invest funds to strengthen economic ties with Islamabad at a time when Pakistan is facing an acute shortage of dollars to shore up its foreign currency reserves. China, Saudi Arabia, and UAE deposited a total of $9.2 billion in cash in the State Bank of Pakistan’s foreign currency reserves over the last fiscal year, ending on June 30, 2019. Further financial support has come in the form of development programmes and trade subsidies from various states, including the European Union.
IMF First Deputy Managing Director, Mr. David Lipton, said that “Pakistan is facing significant economic challenges on the back of large fiscal and financial needs and weak and unbalanced growth. In this context, the authorities’ program aims to tackle long-standing policy and structural weaknesses, restore macroeconomic stability, catalyse significant international financial support, and promote strong and sustainable growth.”
Pakistan has a large public debt, leaving the country unable to deliver key services to its people. Its public financial management is weak and inefficient as a result. There is little stability in the economy, especially as the tax base is small and tax revenue low. With population of 197 million people, only 1,800,000 people file tax returns. Whilst the government rules from Islamabad, the regional provinces operate independently, this compromises a consolidated effort to strengthen the sustainability of any budgeting proposals.
China has been investing particularly heavily in Pakistan with the China-Pakistan Economic Corridor (CPEC) project, its total investment estimated to exceed USD 60 billion. In response to this, President of the United States of America, Donald Trump, has expressed serious reservations over global lenders like the IMF providing a bailout to Pakistan to assist them in paying off Chinese debts. The CPEC project is designed to bring a network of roads, railways and energy projects linking China’s resource-rich Xinjiang Uyghur Autonomous Region with Pakistan’s strategic Gwadar Port on the Arabian Sea. However, to date, Pakistan has seen little, if any, benefits from the project, for the country or its people.
Those marginalised by Pakistani policies, namely women, children, ethnic and religious minorities, have suffered the most. There is an urgent need for social assistance programs, amongst other measures, to be created to support the economic empowerment of women and invest in areas where poverty is high. Pakistan has never achieved its full economic potential due to corruption, lack of investment in infrastructure and its weak governance, particularly in the business sector, which fails to attract investors. Pakistan is also on The Financial Action Task Force (FATF) black list, with several countries including the US, United Kingdom and France highlighting its activities towards state sponsored terrorism. With such indebtedness and financial insecurity linked to the governance of Pakistan, the country has remained fragile and susceptible to manipulation. Global financial institutions and nations must ensure the funds are being used for the purposes they have been assigned for, with specific monitoring of those most vulnerable in Pakistani society. Measures that focus more on how these vulnerable populations are affected should be used as the indicators that the money is being used wisely.