A New Dawn

Pakistan is one of the most resilient nations in the world, with a history of overcoming adversity. The country’s strength lies in its people—visionary leaders, hardworking citizens, and, most importantly, its youth.

Prof. Engr. Zamir Ahmed Awan
Pakistan is indeed facing a challenging period, with complex and multifaceted issues that include economic instability, political uncertainty, and the persistent threat of terrorism. These challenges are interconnected, with economic instability and political instability feeding into the conditions that allow terrorism to thrive.

Unfortunately, anti-Pakistan media outlets have been quick to exploit these difficulties, projecting a pessimistic view of the country’s future. They spread narratives of desperation and frustration, aiming to distort the social fabric and undermine the confidence of the Pakistani people, particularly the youth.

However, this negative portrayal does not reflect the true spirit of Pakistan. Pakistan is one of the most resilient nations in the world, with a history of overcoming adversity. The country’s strength lies in its people—visionary leaders, hardworking citizens, and, most importantly, its youth. The youth of Pakistan are full of energy, talent, and determination. They are well-equipped to meet these challenges head-on and transform the nation into a strong, modern, and developed country.

Pakistan’s youth, with their innovative minds and unyielding spirit, are the key to overcoming these challenges. They have the potential to drive economic growth, contribute to political stability, and combat the forces of extremism that threaten the nation’s security. With the right support and opportunities, Pakistan’s young generation can lead the country towards a brighter future, one that is prosperous, peaceful, and united.

In the face of adversity, it is essential to remember that Pakistan’s future is not defined by the challenges it faces but by the resilience and determination of its people. The nation’s journey toward development and progress will be guided by the strength and vision of its youth, who are ready to rise to the occasion and build a stronger, more prosperous Pakistan.

Economic Trends:

Pakistan’s economy is showing clear signs of resilience and recovery, indicating that it is on a promising path towards stability and growth. The positive trends observed in FY2024 suggest that the country is well-positioned to overcome its challenges and achieve sustained economic progress.

Economic Stability and Fiscal Strength:

Pakistan’s economic landscape is gradually stabilizing, with inflation decreasing and the primary fiscal account registering a surplus from July to May FY2024. The current account deficit has become negligible, and the exchange rate has stabilized, reflecting prudent fiscal and monetary management. These developments are crucial indicators that the economy is on the right track, providing a strong foundation for future growth.

Agricultural and Manufacturing Performance:

The agriculture sector has outperformed expectations, laying the groundwork for robust economic activity. Large-scale manufacturing (LSM) is also on the path to recovery, with a notable expansion of 1.0 percent during July-May FY2024, reversing last year’s contraction. The surge in manufacturing activities in May 2024, with a 7.3 percent year-on-year growth, underscores the sector’s strong recovery, driven by significant contributions from key industries such as food, apparel, pharmaceuticals, and machinery.

Inflation and External Account Improvements:

Consumer Price Index (CPI) inflation has shown significant improvement, reaching the cusp of single digits in June 2024. The year-on-year inflation rate of 12.6 percent in June 2024, compared to the 29.4 percent recorded in June 2023, reflects the effectiveness of the government’s inflation control measures. The external account has also strengthened, with a tangible increase in exports and remittances, leading to a significant reduction in the current account deficit to $0.7 billion in FY2024, compared to $3.3 billion last year.

Government Initiatives and International Support:

The government’s efforts to consolidate fiscal stability have borne fruit, as seen in the improved fiscal balance and a primary surplus of Rs. 1,620.5 billion.

The recent staff-level agreement with the IMF on a 37-month Extended Fund Facility Arrangement worth $7 billion further underscores international confidence in Pakistan’s economic policies. This agreement is expected to provide additional stability and support for the ongoing recovery.

Positive Trends in the Financial Sector:

The financial sector has also shown encouraging signs, with the Pakistan Stock Exchange continuing its upward trend and the money supply growing by 15.5 percent during FY2024. The increase in foreign direct investment (FDI) by 16.9 percent, particularly from key partners like China, Hong Kong, and the UK, reflects growing investor confidence in Pakistan’s economic prospects.

Outlook and Future Prospects:

The economic outlook for Pakistan is optimistic, with expectations of continued growth in agriculture and large-scale manufacturing. The government’s commitment to maintaining a stable exchange rate, macroeconomic stability, and encouraging external sector performance will likely drive further improvements. Inflation is projected to decrease further, and the revival of domestic economic activities, coupled with improved foreign demand, bodes well for the country’s economic future.

Key Highlights

The Government of Pakistan has recently undertaken a series of strategic economic measures aimed at reviving the national economy, ensuring sustainable growth, and expanding the tax base. These measures reflect a comprehensive approach to address longstanding structural challenges and lay the groundwork for a more resilient and diversified economy.

1.            Expansion of Tax Base:

                In a significant policy shift, the government has decided to tax the agriculture sector to broaden the tax base. This move is critical for creating a more equitable tax system where all segments of society contribute to the national exchequer. By bringing the agriculture sector, which has historically been under-taxed, into the tax net, the government is addressing a key area of concern for industrialists and international financial institutions like the IMF. This initiative will help alleviate the tax burden on the industrial and salaried sectors, leading to a more balanced and fair distribution of tax obligations across different sectors.

2.            Targeted Taxation on Property Development:

                The Federal Board of Revenue (FBR) has introduced a structured tax regime on real estate development and sales. The imposition of up to 15% tax on gross receipts from property development activities is designed to ensure that profits from one of the most lucrative sectors contribute fairly to the national revenue. This policy is expected to generate significant tax revenue, which can be reinvested in public infrastructure and social services, further stimulating economic growth.

3.            Monetary Policy Adjustments:

                The State Bank of Pakistan (SBP) has taken a proactive stance by reducing the policy rate by 100 basis points to 19.5%. This decision is based on improving inflationary trends and a positive outlook for the external account. The rate cut aims to stimulate economic activity by making borrowing more affordable for businesses and consumers. This is particularly important for the agriculture and IT sectors, where lower interest rates can drive investment, increase productivity, and promote export-led growth. The MPC’s commitment to maintaining a tight monetary policy stance while gradually easing rates underscores the balance between promoting growth and controlling inflation.

4.            Positive External Sector Outlook:

                Pakistan’s external account has shown remarkable improvement, with the current account deficit narrowing to 0.2% of GDP in FY24, down from 1.0% in the previous year. This improvement, coupled with a significant increase in SBP’s foreign exchange reserves to over $9 billion, reflects better management of external obligations and an increase in financial inflows, including from the IMF’s Extended Fund Facility (EFF) program. The continued robust growth in exports and remittances is expected to keep the current account deficit in check, providing a stable foundation for future economic growth.

5.            Fiscal Consolidation and Stability:

                The government has achieved notable fiscal consolidation, turning the primary balance into a surplus and reducing the overall fiscal deficit. These measures are crucial for macroeconomic stability and will help build fiscal and external buffers, enabling the country to better withstand future economic shocks. The government’s focus on reducing reliance on domestic bank financing for deficit management is expected to free up credit for the private sector, further boosting economic activity.

Impact on Economy

These measures are not just incremental steps; they are catalysts for a broader economic revival. The expansion of the tax base, particularly through the inclusion of the agriculture sector, will enhance revenue generation and reduce the fiscal deficit, thereby improving the country’s financial health. The targeted taxation on property development ensures that profits from high-growth sectors are reinvested into the economy, fostering a cycle of growth and reinvestment.

The monetary policy adjustments, particularly the reduction in interest rates, are expected to spur economic activity across various sectors, particularly agriculture and IT. These sectors are crucial for export-led growth, which is vital for improving the balance of payments and reducing dependency on external debt.

The improvements in the external account, coupled with fiscal consolidation, will strengthen investor confidence, attract foreign direct investment, and create a more stable economic environment. This stability, in turn, will support long-term planning and

stable economic environment. This stability, in turn, will support long-term planning and investment, essential for sustained economic growth.

The Special Investment Facilitation Council (SIFC) and Operation Azm-e-Istehkam are pivotal initiatives aimed at fostering peace, safety, security, foreign investment, and economic development in Pakistan. The SIFC serves as a strategic body designed to streamline investment processes and create a conducive environment for both local and international investors. By reducing bureaucratic hurdles and ensuring policy consistency, the SIFC aims to attract substantial foreign investment, which is crucial for economic growth and job creation.

Operation Azm-e-Istehkam, a comprehensive security initiative, complements these economic efforts by addressing the country’s internal security challenges. Through targeted actions against terrorism and criminal networks, this operation seeks to restore and maintain peace and order. A secure environment is essential for economic activities to flourish, as it builds investor confidence and promotes stability.

Together, these initiatives are instrumental in transforming Pakistan’s economic landscape. The SIFC’s focus on investment facilitation coupled with Operation Azm-e-Istehkam’s emphasis on security creates a synergistic effect. This dual approach not only enhances the country’s image as a safe and attractive investment destination but also stimulates sustainable economic development. In turn, this leads to improved socio-economic

conditions, increased employment opportunities, and a higher standard of living for the Pakistani population.

The government’s recent measures are a well-coordinated effort to address structural challenges, stimulate economic activity, and ensure long-term sustainability. By expanding the tax base, rationalizing property taxes, adjusting monetary policy, and achieving fiscal consolidation, Pakistan is on a path to economic recovery and growth.

These steps will not only revive the economy in the short term but also lay the foundation for a more resilient and diversified economic future. The outlook is optimistic, with the potential for significant gains in economic stability, growth, and prosperity.