In a report, the World Bank has depicted bleak picture of the economy of Pakistan, putting the gross external financing requirements of the country at 9 percent of the gross domestic product or $31 billion for the current fiscal year. However, the Ministry of Finance has rejected the report, saying the country’s gross external financing needs are $18 billion during the year, at least 41 percent less than what the bank claimed in the report. There is no doubt the state of economy is not promising, partly due to political instability and partly due to inconsistent economic policies. If the implementation machinery is outdated, the laws have also been disfigured over the years and are obsolete. The international financial institutions and several think tanks of the country have stressed the need for structural reforms in every sector of the economy. But situation went from bad to worse. The imposition of 0.6 percent withholding tax, introduced by Finance Minister Ishaq Dar, not only decreased the collection of tax revenues, but also destroyed the burgeoning construction and real estate sectors. Unrealistic business conditions and tough government restrictions also caused capital flight from the country. The business community sees Dubai, United Kingdom and the United States as more attractive investment destinations than Pakistan.
In its rejoinder to the World Bank, the government claims the gross financing requirements have been worked in line with portfolio investment of 4 percent of the GDP and that is equal to $13.8 billion. As a matter of fact, whether the country’s gross financing need is about $18 billion for 2017-18 as the government claims or is $31 billion as mentioned by the World Bank in its report, the business and trade activities are subdued in the country. Pakistan’s total portfolio investment remained $6.6 billion rather than $13.8 billion during the first quarter of the current fiscal year. However, the time will prove which of the two was wrong. But everything is not all right in the country.
The ministry can reject the update released by the World Bank, but cannot deny the ground realities. The country is facing slow economic activities, which will definitely affect the collection of taxes and duties. The foreign exchange reserves are also on the downward trajectory as the reserves have declined to $13.8 billion from nearly $20 million a year ago. The current government has to take plausible step to improve the situation.