Structural reforms in Pakistan’s economy

Pakistan, an unfortunate state, has experienced various economic downturns since its inception. Various governments came and introduced intriguing reforms to revive the state’s economy. However, the current situation indicates that there are definitely unresolved structural dilemmas in the economic system of the state.

In a broad sense, the economy of any country relies on various structures that are interconnected, but at the same time differ in their own functioning. For example, the institutional structure in the case of Pakistan; there is the State Bank of Pakistan, the Ministry of Finance and the Security and Exchange Commission of Pakistan (SECP). Another option is a legal structure supported by a constitution and a revenue or financial structure that relies on the taxation system and state-owned enterprises such as PIA and Pakistan Steel Mills.

But the last decade has witnessed continued growth in Pakistan’s economy. Every time the delegate rushes to the IMF for a bailout package. Therefore, Pakistan is strictly demanding structural reforms in its economy and bypassing the barriers that are hampering its growth.

Immature structural operations are a major barrier for the country. Pakistan’s economy has three domestic sectors; agriculture, industry and services. Agriculture employs more than 50% of the country’s population and generates 21% of the total GDP, and this section is required to pay taxes of 0.03%. In contrast, the service sector generates 60% of total GDP and employs 25% of the population. It is composed of doctors, lawyers, engineers and other layers of city employees. While the manufacturing sector pays 70% of the total tax returns.

A common division in which the state collects 84% ​​of taxes at the federal level and the provinces collect 16%, all through indirect taxation. According to the report, this year 2024, salaried workers paid taxes amounting to Rs 367 billion. Increasing taxes reduces purchasing power and causes unrelenting inflation in the market. In addition, there are problems with fiscal federalism. Fiscal federalism means the division of power from the center to the provinces and then to local governments. The 18th Amendment to the Constitution deals with a similar issue of devolution. Thus, the center has high centralized powers in financial matters. But the problem arises when the center is incapable of collecting taxes, and the provinces do not actively participate in collecting taxes; everything is accumulated solely through indirect taxation.

These barriers do not mean that Pakistan is not developed. On the contrary, the above-mentioned obstacles have limited the country’s growth to limited sectors. Akbar S. Zaidi, in his book, called this situation the “paradox of Pakistan’s development.” We are talking about those developments in limited sectors of Pakistan from which neither the people nor the state benefits. For example, Pakistan’s real estate is considered one of the leading real estate sectors in the world, but a small group of elite profit from it. This situation is considered “positive discrimination”, where people look to the elite to carefully evaluate the economic strength of any country.

There are many options and policies that are regulated, but all that is required is adequate honesty regarding these reforms. To revive the economy, several structural reforms need to be implemented. First, the tax system needs to be updated. The government should pay more attention to creating strong local governments. To support this, the government could adopt the “China Model of Decentralization,” under which local governments in China are empowered to collect taxes directly. The second reform is the transfer of state-owned enterprises to private businesses. PIA suffered losses of 7.5 billion rupees, Pakistan Railways and Pakistan Steel Mills suffered losses of over 905 billion rupees. The government may adopt the “Thatcher model of privatization” if it can bear further losses by raising taxes. The most significant structural reforms that a government can choose is to establish links between academia and industry. To cultivate talent, high-quality institutions must be created. Manufacturing industry technology is revolutionary in these times and in new times, more attention can be given to these institutions. The government must provide funds and incentives to promote talent. More schemes and budget programs need to be introduced to encourage rural talent and build nations from scratch. Is there really no other way to survive than to beg the world’s financial institutions every time to breathe a sigh of relief in the conditions of a rapidly growing economy?