Often, Pakistan’s economic managers find themselves in a perpetual fire-fighting mode. This is largely because state-owned enterprises (SOEs) continue to incur massive losses, while the government overspends on routine administrative expenses.
At the same time, significant portions of the economy operate in the grey area, with numerous businesses and industries — influential individuals and entities protected by political affiliations — continuing to evade taxes. As a result, Pakistan’s total revenue collection remains insufficient to meet even basic requirements, necessitating heavy reliance on both internal and external borrowings.
This borrowing perpetuates a vicious cycle: debt repayment obligations claim a significant portion of revenue collections, forcing the government to secure additional loans merely to avoid defaults. Since 2017, successive hybrid regimes — those led by the PTI, Pakistan Democratic Movement, and now the PML-N coalition — have turned to other “friendly” nations for bailouts, borrowing billions of dollars or securing deferred payments on imported oil.
While these measures provide temporary relief, they add to the nation’s debt burden, further undermining long-term fiscal stability. Emerging shifts in the global geopolitical and economic order threaten the very foundations of this approach.
The government’s combined budget for health and education is a mere Rs132bn — compare that to the massive Rs151.4bn loss incurred by the state-run National Highway Authority in just six months
The current hybrid regime acknowledges the severity of these challenges and has made notable attempts to stabilise the economy. These efforts have included keeping the rupee relatively stable, easing inflationary pressures, and diversifying domestic borrowing through innovative financial instruments like leveraging the stock market. This explains the remarkable upward trajectory of the Pakistan Stock Exchange’s KSE 100-index.
While these achievements carry political weight, they are insufficient to ensure sustainable economic growth. True economic stability requires significant investment in critical sectors like education, health, and technology.
The federal government allocates billions annually for administrative expenses tied to overseeing the education and health sectors in coordination with the provinces. However, actual spending on improving service delivery in these two vital areas remains disappointingly low.
In the current fiscal year, the federal government’s combined budget for health and education is a mere Rs132 billion. This pales in comparison to the massive Rs151.4bn loss incurred by the state-run National Highway Authority in just six months according to the half-yearly report for the July-December 2023 period by the Cabinet Committee on State-Owned Enterprises.
Although the combined earning of all the SOEs of the country was said to be Rs102bn in profits in July-December 2023, according to the report, the National Highway Authority, Pakistan International Airways, some electricity distribution companies, and the Pakistan Telecommunication Company posted massive losses.
Relying solely on the private sector to address deficits in education and healthcare has and will continue to fail
Pakistan’s failure to prioritise health and education paints a grim picture. Currently, 25 million children remain out of school, accounting for over one-third of the nation’s school-going population aged 5-16 years. In the health sector, the doctor-to-patient ratio was a dismal 1.18 physicians per 1,000 patients in 2019 according to the most recently available World Bank data. These alarming statistics reveal the neglect of successive governments and policymakers and underscore the pressing need for reform.
Relying solely on the private sector to address deficits in education and healthcare has failed and will continue to fail. Provincial governments, under whose jurisdiction these sectors fall, must take concrete steps — independently and in partnership with the private sector — to enhance both the quality and accessibility of these services. Achieving this will require not only increased budget allocations but also improved revenue collection at the provincial level.
One underutilised revenue source is the taxation of agricultural income. According to credible reports, the Sindh government is awaiting final approval from its political leadership to legislate a proposed Agricultural Income Tax Bill — a move necessitated by International Monetary Fund (IMF) loan conditions. Meanwhile, the cabinets of Balochistan and Khyber Pakhtunkhwa have approved similar bills, though their provincial assemblies have yet to pass them.
The slow pace of reform in taxing agricultural income has frustrated the federal government, which is eager to meet the IMF’s demands. Currently, agricultural income tax accounts for a negligible share of provincial revenue — between 0.5pc and 1pc.
This starkly contrasts with the aggressive tax collection measures imposed on traders nationwide, particularly in Karachi. The question remains: will provincial governments demonstrate similar resolve in taxing the landed elite? Failure to do so will not only jeopardise the IMF’s $7bn loan programme but also exacerbate Pakistan’s rural-urban divide — a structural flaw in the national economy.
Only by addressing these systemic issues can Pakistan hope to break free from its current cycle of economic stagnation and chart a path toward sustainable development.
Published in Dawn, The Business and Finance Weekly, December 9th, 2024
