Wilson Center’s Focus on Pakistan:
The Wilson Center hosts an annual Pakistan Fellowship, bringing Pakistani experts to
Washington for policy research. This fellowship, funded by Masadik Choubdi and Faisal
Sherhandi, is unique in the U.S.
Pakistan’s Economic Context:
Recently, Pakistan achieved a primary surplus in its fiscal budget for the first time in 19
years.
The current account deficit has decreased from $17 billion (a few years ago) to less than
$1 billion.
Foreign exchange reserves improved from covering two weeks of imports in June 2023
to two months by June 2024.
Recent Economic Indicators:
Inflation: Peaked at 38%, reduced to 6.9% by September.
Interest Rates: Policy rate is 17.5%, but borrowing rates are improving; the 6-month
Kaibo was 14.65%.
Stock Market: Reached an all-time high recently, indicating confidence.
Debt-to-GDP Ratio: Improved from 75% to 67%, aiming to further reduce external debt
of $98 billion.
IMF Program:
A new $7 billion, 37-month program with the IMF aims to create lasting stability.
Focus is on reducing “boom-bust” cycles to allow for consistent growth.
Structural Reforms:
Taxation: Targeting an increase in tax-to-GDP ratio from 9-10% to 13-13.5%. Last year
saw a 29% rise in tax revenues, and this year’s target is a 40% increase.
Privatization and SOE Reform: Plans to privatize key sectors for efficiency.
Energy Sector Reforms: To address systemic issues in the power sector.
Fiscal Strategy:
Debt Management: Retired close to 1 trillion PKR in domestic debt, reducing
dependence on borrowing.
Revenue Sharing: A new National Fiscal Pact with provincial governments to streamline
tax revenue and expenditure.
Governance and FATF Compliance:
Pakistan recently exited FATF’s gray list, reinforcing its KYC, AML, and sanctions
framework to prevent regression. Emphasis is on a comprehensive, multi-government
approach, not solely federal.
Energy and Power Sector:
Key goals include affordable tariffs and structural reforms. In recent changes, 80% of
distribution company (DISCO) boards now feature private-sector representatives. Three
DISCOs are entering initial privatization phases, aiming for competitive electricity
purchases.
SOE Reforms and Privatization:
A Cabinet Committee on SOEs, chaired by the speaker, is driving privatization. Examples
include outsourcing Islamabad Airport (IFC assists, with outcomes expected by
November) and privatizing PIA. National Airline debt is restructured into “good”
(privatizable) and “bad” companies.
Public Finances and Expenditures:
A right-sizing committee is actively optimizing federal departments. For pensions, new
government hires now have a defined contribution plan, effective July 1.
Taxation Challenges:
Last fiscal year’s tax revenues totaled PKR 9.4 trillion. With PKR 9 trillion in cash
circulating outside the formal economy, documenting transactions remains challenging.
Broader Economic and Environmental Context:
Population growth is 2.55% (urban: 3.6%), while climate change remains a top issue. The
2022 floods impacted 33 million people, causing $20-25 billion in losses.
1. Special Investment Facilitation Council (SIFC):
o Operational for over a year, SIFC aims to streamline Foreign Direct Investment
(FDI) by reducing bureaucracy. The council, led by the Prime Minister, includes
the Army Chief and Chief Ministers, facilitating both federal and provincial
coordination.
o Inspired by Singapore’s success formula of meritocracy, pragmatism, and
honesty, SIFC acts as a single-entry point for investors, focusing on practicality in
current economic challenges.
2. Current Account and Economic Sustainability:
o The current account has recently shown a surplus due to:
Remittances: Stabilized currency has restored remittance flows to formal
channels, totaling approximately $3 billion monthly.
Roshan Digital Account: Initially saw a dip but has since recovered
strongly.
Exports: IT exports increased by 29% year-on-year (August-September),
with agriculture also showing growth; both sectors are prioritized under
government control.
o Imports: Non-oil imports remain steady at $3.1–3.2 billion, while oil imports are
lower due to reduced growth and favorable international prices.
3. Challenges of Growth and Economic Dependency:
o The government is aware of the structural issue: growth over 4% has historically
led to foreign exchange shortages due to import dependency. A shift toward an
export-driven economy is essential to avoid recurrent balance of payments crises
and dependence on international lenders.
4. Comparison with Afghanistan:
o A question raised about Afghanistan's economy performing better than
Pakistan’s was addressed, with the speaker suggesting a broader economic
comparison is needed and reiterating Pakistan's steps toward macroeconomic
stability, reducing federal expenses, and right-sizing the government through
pension reforms and debt control. Legal system concerns raised in the discussion
were noted but were outside the speaker’s domain.
Climate Financing and Debt Swaps:
The Minister emphasized Pakistan’s limited global emissions contribution (under 1%)
but discussed national commitments, including climate-smart agriculture and water
management, and highlighted the Geneva conference pledges post-2022 floods.
Efforts include working with institutions like the World Bank on climate resilience
projects. Discussions focus on securing project-specific grants and operationalizing the
loss and damage fund, hoping for progress at the upcoming Azerbaijan summit.
Chinese Debt and Panda Bonds:
Talks around Chinese debt focus on reprofiling Independent Power Producer (IPP)
obligations, with the goal to extend maturity rather than restructure, impacting future
tariffs.
Pakistan also aims to issue panda bonds in the Chinese market as a diversification
strategy, with advisors appointed and plans to emulate Egypt’s credit enhancement
model.
Export Competitiveness and Tariff Reforms:
Addressing long-term debt, the Minister discussed reducing protective tariffs and import
substitution, encouraging productivity and export growth in the private sector.
generates exportable surplus.
Remittances:
Remittances, constituting a significant share of GDP, are seen as vital to the current
account. The Pakistan Remittances Initiative (PRI) and Roshan Digital Account (RDA)
have been bolstered with additional bank incentives, especially supporting blue-collar
worker contributions.
Energy Sector and Iran Pipeline Penalty:
On dealing with the Iran gas pipeline penalty amid stalled progress, the Minister
acknowledged the ongoing, delicate discussions but did not provide specifics.
