KARACHI: As political parties in Pakistan struggle to determine the contours of the next government following last week’s general elections, financial experts say the country’s new administration will need to hit the ground running since there are numerous economic challenges that required its immediate attention.
Thursday’s vote presented no clear winner, with independent candidates, mostly backed by former prime minister Imran Khan’s Pakistan Tehreek-e-Insaf (PTI) party, winning over 100 National Assembly seats.
Three-time former prime minister Nawaz Sharif’s Pakistan Muslim League-Nawaz (PML-N) bagged 75 seats, while former foreign minister Bilawal Bhutto-Zardari-led Pakistan Peoples Party won 54. Currently, the top political factions are scrambling to form a coalition in their bid to secure the simple majority of 169 seats.
The elections took place at a time when Pakistan, a country of over 241 million, is grappling with macroeconomic instability due to low gross domestic product (GDP) and high inflation that continue to create financial difficulties for a large segment of the country’s population. Other factors militating against the economy include weakening national currency, low tax collection and political instability.
“There will be no honeymoon period for the new government which will have to immediately start working after taking over since the challenges are numerous,” Zafar Moti, CEO of Zafar Moti Capital Securities, told Arab News on Tuesday.
Pakistan is currently engaged in a $3 billion short-term International Monetary Fund (IMF) program and is expected to negotiate another long-term stabilization facility with the international financial agency after the expiration of the current program next month.
Amid the myriad challenges that the new government will face, two crucial immediate issues that will need to be addressed promptly are “negotiating a new bigger IMF program for the balance of payment stabilization and support for the central bank’s foreign exchange reserves,” according to a statement by Arif Habib Limited.
“The subsequent significant milestone will be the formulation of the budget for FY25,” it added.
Khurram Schehzad, CEO of Alpha Beta Core (ABC), a financial advisory firm, said the country had to pay about $75 billion for foreign debt servicing apart from the huge local debt stock in the next three years.
The debt stock of central government has increased to Rs65.2 trillion (about $233 billion) as of December 2023 compared with PKR 63.4 trillion (about $226.7 billion) recorded in November 2023, according to the central bank data.
“One key challenge [for the next government] is management of debt which will need a holistic plan and strategy,” Schehzad said.
“The second big issue is the energy sector management,” he continued. “This implies the supply of cheaper energy and making sure that it reaches the right quarters, right sectors.”
The ABC chief said the third biggest challenge for the next government would be to reduce tax burden.
“Pakistan has the highest tax burden, not only on industries, but on the salaried class people as well,” he maintained. “The irony is that we are one of the highest tax burdened countries in the region, yet we are lowest in terms of tax to GDP ratio.”
Schehzad suggested reducing corporate tax rates from 29 percent to 20 percent over three years, while completely eliminating 10 percent super tax and significantly reducing turnover taxes to alleviate the burden on businesses. He also proposed reducing the sales tax from 18 percent to 13 percent over three years and incentivizing tax compliance through lower tax rates.
Ahsan Mehanti, CEO of Arif Habib Corporation, said the upcoming government will face the challenge of managing mounting circular debt and deal with the social inequalities.
On the economic front, he noted, “we have to deal with the IMF and, going forward, there are issues with respect to the general social inequality that have to be dealt with, especially education, health and poverty.”
“These are the challenges that the new government is supposed to resolve, and these are the growth factors for the country,” he added.
Financial experts also maintained energy tariffs, inflation, interest rates, rupee stability and negotiations with the World Bank, Saudi Arabia, the United Arab Emirates, China and the United States, along with other donor countries, will remain key challenges for the country and the new government.