Having undergone a whopping trade deficit of over $38 billion and spooky current account deficit of $18 billion, Pakistan must take outright measures to curtail import to the maximum failing to which the economic woes could cripple every sector of the economy of Pakistan. Drastic steps might lead Pakistan to over 7 percent economic growth during the current financial year. One of the most significant moves could be the import substitution and ‘what goes around, comes around’ concept with its trading partners. Tax cuts may turnaround the situation.
Donald Trump, the incumbent US President, seems to be alienating its partners the world over. However, the economy of the USA is giving good news one after another. USA economic growth was 4.2 percent during the second quarter of 2018 compared to the first quarter 2018 growth of 2.2 percent, which is magnificent. The world’s largest economy worth $19 trillion is the largest goods trading partner of China with $635 billion in total two-way goods trade. Tariffs after tariffs have been levied by the Trump administration on the Chinese imported goods to curtail trade deficit worth $375 billion with China. It is not only China, but also Europe, Canada etc. that is the focus of attention by the Trump administration to underpin the US economy. Opinion may vary.
Pakistan’s economy finished off last year on a weak footing, however, is poised for vigorous growth in the backdrop of the news to fix the economy sooner rather than later. Hefty tax cuts for the industry could encourage investment and spending patterns may culminate in increase in exports during the current fiscal. Lenient tax policies could encourage local and multinational organizations already doing business in Pakistan. One very apt example regarding tax is that of Ireland. It is generally said that after Ireland became a tax haven, its growth rate suddenly rocketed in 2015. Economic growth acceleration is prompted by the government spending in infrastructure development, China being the right instance. The incumbent government does not seem to be investing in infrastructure so the same could be done in human development which is equally rewarding.
The towering debt of Pakistan is a huge setback for the government at this juncture. This could only be tackled by attracting foreign investment particularly in agriculture, high tech and manufacturing sectors.
Export-led industrialization policy replaced the import substitution policy way back in 1980s, which has never worked as was thought out. Owing to the influx of imports from across the world, myriad of local industries in Pakistan have not been able to cope with and have shut down since the cost factor wreaked havoc. On top of that some manufacturers have become traders. Instead of manufacturing in Pakistan, they import and then sell with their own brand to offset the cost factor. The industrial progress dissipates if a comparative disadvantage is created in the country for the local investors/entrepreneurs. The pity is that being an agro-based economy, Pakistan imports food-products worth $6 billion annually. Instead of adding value and earning more, Pakistan exports raw material or semi-finished products thus losing revenue.
With the wave of austerity, it is hoped that Pakistan would either curtail or ban the import of pasta, biscuits, tomato paste, juices, kitchenware, grinders, mixers, juices, TVs, air-conditioners, refrigerators, electronic fans, ceramic tiles, sanitary fixtures, cosmetics, after shave lotion etc. and would think of having all these products grown or manufactured by the local investors. Protectionism may prompt criticism, however, there is no way out except it.
Pakistan’s economic growth, poverty alleviation, employment generation can expedite incase serious attention is given to the SEZs namely Punjab-China Economic Zone, Bostan Industrial Zone (Balochistan), China Special Economic Zone, Dhabeji, Thatta (Sindh), Rashakai Economic Zone (Khyber Pakhtunkhwa), Moqpondass SEZ (Gilgit-Baltistan), Bhimber Industrial Zone (Azad Jammu and Kashmir), ICT Model Industrial Zone (Islamabad) etc.
Pakistan’s economic growth is always aligned with the trade policy of the country. The policy needs to be realistic and must be implemented in essence. Unfortunately, the trade policies have never worked as intended due to several reasons. Looking at the trade policy 2005-06, which was considered to meet the emerging challenges of globalization, one can easily say that the import was encouraged rather than promoting exports.
Pakistan is at a crossroads. The government needs to open up the economy and promulgate hefty tax incentives which would bring about rapid progress in the economic growth of the country.