File photo. Banaras Khan—AFP
Pakistan is currently going through one of its worst economic crises, compounded by a political crisis that has no end in sight. Unfortunately, this “perfect storm” has been a long time in the making, as the country has repeatedly failed to increase revenues amidst ballooning budgetary demands. Ringing alarm bells anew, the International Monetary Fund (IMF) this week lowered Pakistan’s economic growth forecast for the ongoing fiscal year to 0.5 percent, adding that inflation would average out to 27 percent and the unemployment rate would increase to 7 percent. Some of this situation can be attributed to global trends, but with regional neighbors slowly emerging from their own financial crises, the role of poor governance in Pakistan’s crisis must be acknowledged before it can be resolved. This, however, requires political stability which neither the ruling Pakistan Democratic Movement (PDM) alliance nor the Pakistan Tehreek-e-Insaf appear too eager to achieve.
Islamabad’s chief issue is tax evasion, with the country’s total collection comprising less than 10 percent of GDP, compared to the regional average of 19 percent. Rather than working to expand the tax net, Pakistan has traditionally relied on foreign lenders to make up its losses, with little concern for reforms that can prove to be a permanent solution; of the 21 IMF programs Pakistan has availed over the last 60 years, 18 have not been completed despite the $30 billion in financial support spread across them.
Decisive policymaking is now required to overcome the pain inflicted by rampant inflation in nearly all sectors of the economy but this seems far-fetched amidst the political conflict unfolding between the ruling alliance and the PTI. Unfortunately, if something is not done—and soon—the biggest losers will be the people of Pakistan, who face suffering unlike anything they have faced before.