Economic Challenges in Pakistan: Urgent Need for Fiscal Reforms


Islamabad: 9 April 2024: A combination of rising state spending and consistently low tax revenue collection have made Pakistan's economic condition much worse in recent years.

As a result, there have been significant budget deficits every year, and in an effort to close the gap, enormous debt has been incurred. Recurring balance-of-payments crises every few years are evidence that the situation has a knock-on effect on the external sector.

In light of this, the World Bank has restated in its most recent policy note that it is "advising" the government to include fiscal sector changes in the upcoming national and local budgets. The proposed measures aim to reduce the consolidated budget deficit by increasing tax collections, reining down spending, and changing the borrowing procedures to restrict debt accumulation.

Improving the productivity and efficiency of government spending is another objective. Reforms in the fiscal sector are essential to raising national investment and savings. India understood the import of the fiscal sector for macroeconomic management and started the reforms process after its 1991 economic crisis.

Consequently, it has attracted massive domestic and foreign investment. It has not had to seek another IMF bailout and is now the world’s third-largest economy.

However, the latest policy note is different from the earlier ones as it calls for the participation of Pakistan’s provinces — as equal stakeholders — in this reform process for stronger inter-government coordination on fiscal issues. Therefore, the bank wants a national fiscal policy that aligns both the federal and provincial tax effort and spending framework in line with the constitutional mandate.

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