New Delhi, Oct 10 2024-
Pakistan’s economy is seemingly trapped in a cycle of decline, with little hope for immediate improvement for its citizens, who are grappling with sluggish economic growth, soaring inflation, and increasing poverty levels.
Currently, inflation stands at 24.8 per cent, a figure that is over four times the global average of 5.9 per cent.
Despite receiving external assistance, including a bailout from the International Monetary Fund (IMF) and debt restructuring efforts from key bilateral partners like Saudi Arabia and the United Arab Emirates (UAE), genuine economic stabilization remains out of reach.
Although a new IMF bailout package has been sanctioned, the likelihood of a real economic recovery appears slim, primarily due to the government’s ongoing hesitance to implement essential reforms across various sectors. This persistent inertia in pursuing structural adjustments further exacerbates Pakistan’s susceptibility to fiscal crises, deepening the existing economic distress and widening socio-economic disparities.
On September 25, the Executive Board of the International Monetary Fund (IMF) sanctioned a $7 billion bailout package for Pakistan, contingent upon the Shehbaz Sharif administration’s commitment to implement “sound policies and reforms” aimed at strengthening the nation’s macroeconomic stability.
This represents the 25th occasion that Pakistan has sought assistance from the Washington-based financial institution, with the current agreement set to last for 37 months. Among the fiscal adjustments that Islamabad has pledged to undertake are significant policy reforms, particularly the extension of the “normal income tax regime” to sectors that have previously been under-taxed, including retail, agriculture, and exports.
This will involve imposing considerable tax hikes and eliminating various exemptions to expand the federal government’s tax base and mitigate its fiscal deficits.
The theoretical justification for such reforms aligns with the IMF’s goals of macroeconomic stabilisation; however, these changes are likely to worsen socio-economic inequalities in a nation where wealth disparity is already among the highest worldwide.
A small elite in Pakistan, comprising just one percent of the population, controls over 30 per cent of national resources, which rises to 60 per cent for the top 10 per cent.
The imposition of additional tax burdens on sectors like retail, where a significant portion of the populace struggles to make a living, will disproportionately impact lower-income groups. Consequently, this seemingly pro-growth fiscal reform poses a risk of further marginalising already vulnerable populations while consolidating economic power within an entrenched elite.
The issue is not merely the inclusion of the impoverished population within the tax framework, which poses risks for reform success, but rather the tax evasion perpetrated by the ruling elite — both political and military — and their appropriation of state resources that complicates the nation’s economic recovery.
While small-scale retailers will face substantial tax obligations, the vast economic empire of the Pakistan Armed Forces remains not only unaccounted for but also exempt from such taxation. This is where the core issue hindering the country’s economic revival resides.
The challenge extends beyond merely incorporating sectors like retail into the tax framework; it fundamentally lies in the pervasive tax evasion by Pakistan’s ruling elite, encompassing both political and military figures, and their monopolisation of state resources, which significantly hinders the nation’s economic recovery.
While small retailers bear the weight of substantial tax responsibilities, the extensive economic empire managed by the Pakistan Armed Forces remains largely unregulated and exempt from similar taxation. This failure to confront entrenched elite capture and the tax immunity enjoyed by powerful sectors underscores a stark disparity in Pakistan’s fiscal landscape.
The true barriers to economic revival are rooted in this imbalance, where the interests of military and political elites are shielded from scrutiny and accountability.
Without addressing these entrenched inequalities, any comprehensive tax reforms are likely to worsen disparities rather than promote true economic stabilisation, particularly given that Pakistan’s armed forces manage a substantial business empire valued conservatively at over $20 billion.
This empire encompasses various sectors, with the Pakistan Army, Air Force, and Navy engaged in commercial activities ranging from the production of basic goods, such as needles, to more capital-intensive ventures like housing, construction, and fuel sales.
There is scarcely an economic sector that does not involve some interest or intervention from the military. A Senate report from 2016 disclosed that more than 50 commercial enterprises, units, and housing developments are operated by organisations such as the Fauji Foundation (FF), Shaheen Foundation (SF), Bahria Foundation (BF), Army Welfare Trust (AWT), and Defence Housing Authorities (DHAs).
For instance, the AWT oversees 16 major commercial ventures, while the FF manages 15 and the SF controls 11.
The issue does not simply revolve around incorporating sectors such as retail into the tax framework; rather, it is the systemic tax evasion by Pakistan’s ruling elite—both political and military—and their monopolisation of state resources that creates significant obstacles to the nation’s economic recovery. While small retailers face substantial tax burdens, the extensive economic empire managed by the Pakistan Armed Forces remains largely unregulated and exempt from similar taxation.
This failure to address entrenched elite capture and tax immunity for powerful sectors highlights a stark disparity in Pakistan’s fiscal challenges. The true barriers to economic revival are rooted in this imbalance, where the interests of military and political elites are shielded from scrutiny and accountability.
Unless the profit-generating enterprises operated by Pakistan’s military are placed under the federal government’s administrative oversight, which appears improbable given the military’s entrenched role in the nation’s political landscape, effective sectoral reforms will struggle to reverse the country’s economic decline.
A state cannot sustain a situation where such lucrative entities remain outside the tax framework while imposing onerous taxes on small retailers who barely earn enough for survival. This structural imbalance renders attempts at economic reform ineffective.
Consequently, neither the recently approved $7 billion IMF bailout nor incremental debt restructuring efforts from creditor nations like China and Gulf states will yield substantial relief for Pakistan’s economy unless significant systemic changes are enacted, particularly in ensuring equitable contributions from all major economic players to the national revenue. (Agency)
