Pakistan’s economy is passing through the most difficult crisis in its history. The main problems plaguing the economy are foreign debt, a current account deficit, declining exports, pressure on the rupee and tax evasion.

The country’s public debt burden is continuously rising, while its external financing requirements are beyond its paying capacity. The country is facing a default-like situation as the economic indicators have been worsening with every passing day. To avoid default and stabilize the economy, the government needs to undertake significant reforms to address its economic weaknesses and restore investor confidence.

The latest reports show that the gross domestic product (GDP) is expected to shrink to under two per cent during the current fiscal year ending June compared with six per cent in the previous financial year. On the other hand, foreign exchange reserves are hardly sufficient to cover our one-month import bill. The rupee, which lost about 40 per cent of its value against the US dollar during the current financial year, is under constant pressure due to shrinking forex inflows, falling remittances and foreign direct investment. Ever shrinking forex reserves have curtailed the country’s ability to fund imports, stranding thousands of containers of supplies at ports and forcing plant shutdowns.

However, in the opinion of experts and analysts, all is not lost yet and the economy can be rescued with appropriate structural reform measures. The proposed corrective measures should include new ways to generate forex inflows and attract foreign direct investment in key sectors of the economy to achieve sustainable growth.

The primary challenge is to boost revenue collection by broadening the tax base and improving tax administration. Pakistan’s tax-to-GDP ratio is one of the lowest in the region, with only 1.3 per cent of the population paying income tax. This makes it difficult for the government to meet its debt obligations and maintain essential services. The need is to prioritize revenue collection by strengthening the tax collection infrastructure and expanding the tax base to increase the number of taxpayers.

Another urgent need is to reduce non-essential spending and untargeted subsidies. The defence budget is one of the largest items of government spending. Reducing non-combat expenditure would free up resources that can be used to finance growth-oriented investments, including education, health, and infrastructure. Similarly, subsidies on essential commodities such as electricity and gas should be recalibrated and targeted towards those who need them the most.

Exports which are the main source of foreign exchange earnings are the Achilles’ heel of the economy. We need to promote export-oriented industrialisation by improving our competitiveness in global markets. The easiest way to do this is to enhance productivity and bring down the cost of doing business. As reported by various chambers of commerce, Pakistan’s cost of doing business is the highest in the region, making it difficult for the country to compete with our neighbours. By reducing bureaucratic red tape and streamlining business procedures we can create a favourable climate for business and attract foreign investment. This calls for putting together an attractive policy package to enable local businesses to compete globally.

Foreign debt servicing is the bugbear of the Pakistan economy. In cooperation with international financial institutions, the government should develop a comprehensive debt management plan to restructure and reschedule its debt payment obligations. Pakistan’s external debt is touching dangerous levels, with external financing requirements far exceeding our available resources. Not only should the debt terms be renegotiated but maturity period should also be increased.

The Pakistani diaspora is a big source of foreign exchange income which can be easily doubled with imaginative planning. If provided suitable incentives, Pakistanis abroad can inject huge investments into the national economy. According to an estimate, overseas Pakistanis remitted over $140 billion through official channels in the past five years which greatly helped to stabilise the economy.It is expected that the non-resident Pakistanis would remit up to $100 billion in the next three years, which will be helpful in repaying $75 billion worth of foreign liabilities. The need is to devise suitable projects to attract Pakistani diaspora towards key growth sectors such as real estate, hospitality, renewable energy, infrastructure, tourism, health and education. Tourism is a sector with huge potential for growth. But these hidden assets need to be aggressively marketed abroad.

Tough economic reforms and good governance hold the key to turning around the economy which has been grossly mismanaged in previous years. The government needs to take immediate action to address the root causes of the problems and build a strong and resilient economy that can withstand future shocks. It is time we learned to live within our means, and adopt austerity in all sectors of society so that dependence on domestic and foreign loans is minimized. This would obviate the need to go to the IMF again and again.