Page 37 - Accountant Jan-Mar 2019

Cover Story How can Pakistan Overcome its Economic Challenges? by Muhammad Farrukh Siddiqui very once in a while i.e. after every change of deficit will always slow down the economic progress of any government, we hear that Pakistan is doomed, we as country as it would lead to cutting down the development a country are about to default and the economy is projects which will have an overall negative impact on Eabout to collapse. So are these claims real every single economic growth. time? In Pakistan's case, it seems reasonable to say that they are. It is mainly due to the superficial/cosmetic steps taken Now the second figure which is also quite alarming is the by most of the past governments to revamp the economy current account deficit which was US$ 3.6 billion in first rather than sorting out the root causes of the problems. quarter of FY19 as per SBP. For all those who do not know the term, the current account deficit is a broader trade There is a misconception that measure that encompasses the trade deficit along with other components. A country would have trade deficit if devaluation of currency will in turn the total value of goods/services imported is greater than the total value of goods/services it exports. reduce the current account deficit. There is a misconception that devaluation of currency will Let’s take a look at the current situation. As per the State in turn reduce the current account deficit, which is not Bank of Pakistan (SBP) figures, overall fiscal deficit has true in all the cases. That is because while increasing the reached at Rs. 541.7 billion in first quarter of FY19. For exports (because of increase in exchange rate) it will also in all those who are not aware of the said term, it is the most of the cases make the imports more expensive. difference between the total revenue and total expense of the government. This deficit is mostly financed by Almost eight million Pakistanis who borrowing from the SBP, scheduled banks or getting the banks to finance the purchasing of commodities. live abroad can play a vital role in Is fiscal deficit always a negative sign? Yes, in most of the revamping the economy. cases it is. However, in some situations deficit spending can be used to revamp/jump start the economy by financing Long term steps that Pakistan should take include making development projects i.e. projects which can play their part the export industry competitive, this may include giving in economic growth and development. them incentives such as reducing in the utility cost, giving refunds on exports, encouraging the investors to setup Long term steps that Pakistan should export industries and giving tax reliefs to the industry. take include making the export Other steps include increasing the foreign remittance industry competitive. received from abroad. Almost eight million Pakistanis who live abroad can play a vital role in revamping the economy. These Pakistanis need to be given incentives to send in So how can Pakistan overcome this challenge? In simple the remittances through banking channels and not use terms, by increasing its revenues. However, it is easier said conventional modes such as hundi, etc. than done. This would involve long term measures such as increase in the tax base, revamping the Federal Board So whether we can get the economy back on its feet needs of Revenue (FBR), giving incentives to people in getting to be seen, but this will depend upon taking concrete themselves registered in the tax base, etc. This may also measures addressing the root causes rather than taking include short term measures such as funding the deficit by superficial steps. issuing bonds. On the other end, the government can reduce its non- developmental expenditures to reduce the fiscal deficit; The writer is a chartered accountant working as this may include taking austerity measures. The fiscal assistant vice president Habib Metropolitan Bank. January - March 2019 The Pakistan Accountant 35