Vikrant Shekhawat : Oct 14, 2024, 05:00 PM
Pakistan Economic Crisis: Recently, the International Monetary Fund (IMF) approved a relief package of $ 7 billion (about Rs 588 billion) to Pakistan. However, with this financial help, the IMF imposed many strict terms and conditions, under which the Pakistan government had to close 6 ministries, causing the loss of jobs of about 1.5 lakh people. Now, the IMF has placed another important condition in front of the Pakistan government, which can become a matter of serious concern for Pakistan's agriculture and textile industry.Demand to stop special exemptionsThe IMF has demanded the Pakistan government to stop giving any kind of special tax exemption or protection to the agriculture and textile industry. The IMF believes that Pakistan's potential economic growth is being blocked due to the special exemptions given to these sectors. According to the IMF report, Pakistan's agriculture and textile sectors, which have long played an important role in the country's economy, have now become ineffective and are unable to contribute substantially to the country's growth rate.IMF's strict opinion for agriculture and textile sectorThe recent report of IMF said that agriculture and textile sectors, which play a major role in Pakistan's exports, have failed to improve the country's economic condition despite the tax exemptions and other facilities being given by the government. According to the report, a large part of Pakistan's public funds are being used on these sectors, while this sector has failed to survive in global competition. Due to this, there is a lack of investment in other important sectors, which is proving to be detrimental to Pakistan's economy.Need for change in economic policyThe IMF has recommended changes in Pakistan's 75-year-old economic system. According to the IMF, the concessions and tax exemptions being given to agriculture and textile industry are weakening Pakistan's economy. On September 26, the IMF approved a relief package of $ 7 billion for Pakistan, out of which more than $ 1 billion has already been released. Under this relief package, Pakistan will get the amount in installments in the next 39 months, but for this Pakistan will have to follow the conditions of the IMF.Reason for Pakistan's slow progress: 'Conservatism'The IMF's October 10 report said that economic conservatism (stagnation) in Pakistan has held back the country's development, leaving 40.5 percent of the population living below the poverty line. This situation is keeping Pakistan far behind other countries.The report further states that Pakistan's exports have mostly been focused on agricultural and textile products, including cotton yarn, rice, woven fabrics, beef and leather goods. Due to excessive focus on these sectors, the country could not focus on more technical and complex resources, which limited its export potential.Pakistan lagged behind due to more focus on agricultureThe IMF says that Pakistan's excessive focus on the agricultural sector is limiting the country's economic diversity. Due to this, Pakistan has not been able to effectively increase its participation in global value chains. Pakistan has exported high-value goods such as medicines, medical equipment, and plastic products, but these industries have not been able to become effective on a large scale due to economic instability and policy challenges.Limited benefit of exemptions given to the textile industryThe IMF report also mentions that despite the tax exemptions given to the textile industry, this sector has not been able to contribute significantly to the country's economy. Between 2007 and 2022, the textile industry received a lot of subsidies and financial concessions, yet its production and export could not grow to the expected level. According to the report, 70% of the outstanding loan of the Central Bank of Pakistan is also linked to the textile industry, which is deteriorating the economic balance.Suggestion of changes in the new tariff policyThe IMF has suggested the Government of Pakistan to simplify the trade policy under the upcoming National Tariff Policy (2025-29) and end the special exemptions being given to ineffective sectors. The IMF believes that Pakistan's current policies have weakened its export performance and prevented it from becoming an effective participant in global value chains.ConclusionWhile the relief package given to Pakistan by the IMF can be an important step towards improving the country's economic condition, the strict conditions that come with it are proving to be a big challenge for Pakistan. Especially the conditions to stop the special exemptions given to major sectors like agriculture and textiles will be a difficult decision for the government. Now it remains to be seen how Pakistan adopts these conditions and how it takes steps towards improving its economic condition.