Balance and structure in Pakistan’s economic troubles

Two different pieces on Pakistan’s economic troubles:

Meekal A. Ahmed, in The Express-Tribune, warns against putting off fiscal reform due to misplaced comfort in the fleetingly good balance of payments situation:
 

“Experience teaches, however, that a seemingly comfortable cushion of reserves can vanish with astonishing speed. Global prices for food and oil are beginning to surge, reminding us of Pakistan’s last balance of payments crisis in 2008. With no agreement on a pass-through mechanism for oil prices in Pakistan and oil prices in world markets headed higher, Pakistan’s fiscal deficit and import bill are set to soar, the former because of oil subsidies and the latter due to the rising unit price of oil. It is true that exports and workers’ remittances have performed exceptionally well so far and reimbursements from the Coalition Support Fund have also helped shore up the external position. However, it is not clear whether these favourable developments will be sustained in the remaining five months of 2010-11 and beyond, and/or whether they will be overwhelmed by adverse developments on the fiscal and import front.”

In his piece in Dawn, Sakib Sherani argues that Pakistan’s economic difficulties stem from an structural problem. The economic elite, having captured the corridors of power, are largely exempt from the :

“The biggest challenge for those discussing agendas to bring the economy back to health is how to incentivise their own political class to think beyond an election cycle. The manifestation of this malady — state capture by an elite with its attendant atrophy of institutions — and its pernicious effects are everywhere.

“The most egregious example is found, of course, in our tax who’s who. With around
2.5 million income tax filers (not necessarily all payers), a large portion of who are salaried, it is hardly surprising that direct taxes on income constitute a meagre 3.6 per cent of GDP. Hence, of the abysmally low — and declining — tax-to-GDP ratio, 60 per cent comes from taxing the consumption of every Pakistani, irrespective of income.”

You can read Ahmed’s piece here and Sherani’s here.

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