Financial Condition of Pakistan

Student Name: ANJUM AHMED

Student ID: BEM-1112

Report Submission Date: 04- Sep-2011

Introduction
While over 170 million Pakistanis celebrated their 64th Independence Day with traditional fervour on Sunday, despite languishing under heaps of ills, not many wise heads would have paid heed to the fact that the nations born after Pakistan have excelled by leaps and bounds not only to improve their financials and command global respect, but also to provide the highest quality of life to their respective citizens. On the other hand, it is an irony that Pakistans sorrows on the economic front continue to multiply in spite of the fact that the country is naturally gifted with the worlds 10th largest labour force comprising 55.77 humans. (Source: The CIA World Fact book 2011 rankings). On the contrary, countries like India, South Korea, China, Austria, Brunei, Israel, Singapore, UAE and Malaysia etcall of whom had come into being after Pakistanhave shown commendable post-independence progress through sheer resilience, perseverance and resolve.

Facts & Figures for the Fiscal Year 2010-2011

So far as Pakistan is concerned, periods of military rule, wars with India, political instability, ethnic, linguistic and sectarian conflicts, terrorism, poverty, unemployment, illiteracy and corruption etc continue to haunt it. Pakistan, with the eighth largest standing armed force in the world, has the 28th largest economy on the planet in terms of Purchasing power parity with a GDP of approximately $451.2 billion and a Per Capita of $2,400 only, less than that of Indias $3,400. Similarly, Pakistans GDP (nominal) is about $175 billion and a Per Capita of $1,049, which is again less than Indias 1,382. While 24 per cent Pakistanis are living below the poverty line, an unemployment rate of 15 per cent and soaring inflation of more than 20 per cent are eating away any little momentary gains or windfalls. The Pakistani governments budgetary revenues are barely $25.33 billion, against expenditures of $36.24 billion, giving a fair idea of the countrys economic size. Pakistans external debt is $58 billion, Pakistans Forex reserves are between $16 and $17 billion-pretty dismal by any standards. Pakistan, on the other hand, found its exports touching the $25.290 billion figure (Source: Ministry of Commerce) during financial year 2010-2011.

According to Pakistans Federal Bureau of Statistics, the country exports goods worth $24.827 billion and imported goods worth $40.414 billion, meaning thereby that the trade shortfall was $15.587 billion during the period under review.

Discussion
Pakistan having more than 170 million population, but economic performance indicators is very frustrated. Pakistan financial condition is getting worse due to the following reasons:

Inequity in Taxes:
Taxes are the main sourse of revenue of any government. But unfortunately Pakistan tax collection system is very old, underperforming, corrupt and not facilitating people causing more leakages in revenue collection. So far as Direct Taxes are concerned, agriculture income is not taxable while mostly GDP contribution is from agriculture production and most of the population is engaged in the agriculture profession. Government mostly relies on indirect tax which is causing inflation and inequity of taxation system. In addition to inequitable taxation system, the only remaining and the major source of government revenue is indirect tax which is also under threat. As Corporate sector is involved in the collected tax revenue theft from the public with the help of some CBRs corrupt employees.

Law & Order Situation:

Due to bad law and order situation, foreign investors are not interested in Pakistan. Even Pakistani Investors are also shifting their industry to Bangladesh. Uncontrolled Bhatta Mafia, Kidnapping for ransom, life risk and strike calls are playing their roles in the discouragement of investment in Pakistan.

Subsidy:
As Pakistani government revenue is less than its total expenditure, still government is subsiding some of the Sectors which are compelling government to borrow from State Bank of Pakistan. Billions of borrowing from SBP are resulting in the issuance of new Paper Currency consequently inflation.

Inflation:
Inflation is eroding Pakistani peoples saving. Saving is a major source of local investment which results employment and business profit. So, Saving increases Government source of revenue i.e. income tax. But unfortunately, issuance of new currency by SBP, discouraging interest rate, increase in oil and food prices internationally have pushed Pakistani economy towards inflation.

Export & Import:

Pakistani population is getting product user not product manufacturer. As Textile and other manufacturing units are shifting from Pakistan rapidly. Consequently, Imports are increasing and Exports are declining which is causing imbalance of Payment and Trade. Textile industry is a Pakistan major Export contributor approximately 70% of the total export which is badly getting affected by the hike of production cost due to increasing electricity rate and high cost of transportation and labour while energy shortage is another factor.

Defence Budget:
Pakistans more than 50% budget allocation is for Defence. Defence is basically an expense. So, Government remains no income left for education, health, expansion and facilitation of industrial units. So, Pakistans financial condition and economy as a whole is moving towards a bankruptcy.

Government tendency towards expenditures:

Current political government has a survival policy. It is weak and coalition based government. So, to retain the coalition government, more and more and even unnecessary ministries are being introduced then their foreign tours and uncontrolled corruption. No legislation is in under process to control this corruption. NAB is also practically dysfunctional.

Conclusion:
Pakistan is going towards failure state. But by the grace of God, it is struggling and the friend states like china who helps Pakistan in technology; and Saudi Arabia and UAE helps in Financial turmoil keeps Pakistan away from Bankruptcy. Government has more inclination towards Expenditure while Revenue Generation for them has no preference. So, Government is balancing their expenses through IMF program which is also paralyzing Pakistani government and economy.

Recommendation:
Pakistani Government should take serious steps towards friendly relation with India so that Defence Budget could be cut. Reforms should be made in tax collection system and leakages should be removed and tax base should be spread to agriculture. Subsidy should be stopped so that borrowing and new currency issuance can be controlled. Consequently inflation can be controlled.

 Fast Judicial trials should be introduced so that law and order situation can be controlled. Consequently, trust of local and foreign investor can be built and shifting of industry out of country can be stopped. New Export Processing Zones should be introduced so that balance of trade and payment can be achieved.