Structural Reforms: A ‘Basic Hygiene’ For Macroeconomic Stability
M Ashraf Wani
Islamabad: Structural reforms are pivotal for achieving macroeconomic growth and stability. They are a “basic hygiene” for sustainable growth, forming a cornerstone of the government’s policy agenda,” stated Ministry of Finance and Revenue Federal Minister Muhammad Aurangzeb.
According to the official data, 43 per cent of sectors in the economy pay less than 1 per cent tax, resulting in a tax-to-GDP ratio of just 8.8 per cent which is unsustainable and no country in the world could be run with these meager resources.
Resultantly, Pakistan had to depend on external financing to bridge the fiscal gaps and struggles to achieve sustainable growth.
In this regard, the federal government has committed to tax reforms and rightsizing to achieve macroeconomic stability and secure a prosperous and progressive future for the country.
To reduce dependence on external financing and improve revenue collections, the government is lifting the tax-to-GDP ratio up to 13 per cent as envisaged in the budget document for the current fiscal year (2024-25).
The goal is to broaden the tax base and bring potential taxpayers into the tax net to boost the income of the national exchequer and help reduce dependence on external financing, besides encouraging investment and economic growth.
In addition to tax generation, the government has been seriously taking measures to reduce its expenditures and slash the fiscal deficit. The federal budget 2024-25 predicted a headline deficit of 5.9 per cent of GDP and a 2.0 per cent primary surplus against 7.4 per cent and 0.4 per cent, respectively, during 2023-24.
For ordinary citizens, the impact of tax reforms and rightsizing may seem distant, but the government is clear in its thinking that everyone must contribute to the country’s economy and play their respective role in economic uplift.
Government’s Rightsizing Initiative
Currently, Muhammad Aurangzeb is heading the High-Powered Committee on Rightsizing of the Federal Government to reduce the size of different ministries and autonomous bodies.
Six ministries were asked to prepare an implementation plan for rightsizing, considering their employees, resources, properties, and litigation matters.
Once this process is complete, further ministries would be considered for reforms and rightsizing. However, the government would need to bring legislative changes to the Civil Servant Act 1973 to carry forward the rightsizing process smoothly.
Experts believe that rightsizing would help reduce expenditures and slash fiscal deficits; improve efficiency and productivity in the government ministries and autonomous bodies; reduce the size of the federal government; and improve governance, besides encouraging private sector growth and investment.
Economic Resilience
Though it’s a rocky road, the efforts look sincere. The economy has gradually improved since the incumbent government took office, as seen by different economic indicators.
According to Economic Update and Outlook, Pakistan’s economy started Fiscal Year 2025 with positive developments, setting an optimistic tone for the months ahead.
Both the fiscal and external sectors have shown resilience, attributed to improved management, revealed Economic Update and Outlook, and noted that the current account has improved and FBR tax collection exceeded the target.
The Pakistan Bureau of Statistics (PBS) data revealed a drop in consumer price index-based inflation to a single digit (6.9), suggesting that the economy is on track.
The drop in inflation would help bring the policy rate by the State Bank of Pakistan (SBP) down accordingly, hence helping businesses to flourish.
The prudent policies introduced by the government brought about various positive developments on the economic front. Currently, foreign exchange reserves exceed $9 billion, covering over two months of imports while the country has a stable currency.
Twin deficits, particularly the current account deficit, are under control whereas remittances have increased. Based on the rich performance of the economy, international recognition from rating agencies Fitch and Moody’s has increased Pakistan’s rating by one notch.
Federation of Pakistan Chamber of Commerce and Industry (FPCCI) President Atif Ikram Sheikh has also expressed satisfaction over declining inflation and upgrades in credit rates by rating agencies.
As the government vows to continue with tax reforms and rightsizing, Pakistan’s journey towards macroeconomic stability seems promising, said Atif.
As the government works hard to steer the country out of economic instability, all stakeholders, particularly political parties and the business community, must work together to implement much-needed reforms that will pave the road for economic stability and the welfare of citizens.
The news report was released by APP.
