Critical reforms: key to revival & stability

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Promise of relief to the less-privileged by the government has proved to be a hollow claim. Poor governance and imprudent economic policies of both military dictators and civilian governments, have brought the country to a position where fiscal management is restricted to raising prices of essential items and imposing new taxes. The race for grabbing power by political parties and tussles between state organs are the main causes of perpetual instability. Inflation in Pakistan is all time high due to failure in undertaking policy reforms. The only option available to the present government to manage its finances, seems to be increase in prices of petroleum products and electricity.

As people of Pakistan witness fortnightly increase in prices, the Finance Minister appears on TV and blatantly lies about spikes in petroleum products internationally to justify his actions. He does not even bother to mention that the government is charging heavy duties and taxes from poor people as a cost of its incompetence in not introducing policy reforms agreed upon with the global lenders.

Late evening of April 15, 2023, the finance minister again increased price of petrol by Rs. 10, which is now close to Rs. 282 per liter. However, there was no change in the price of diesel and light diesel at Rs. 293 and Rs. 175, respectively. The government should have realized that this increase will further fuel the historic high inflation that is playing havoc with the lives of the underprivileged.

The long-delayed and much-needed fiscal reforms are being ignored. A substantial part of taxpayers’ money goes in debt servicing and/or wasted in funding loss-making state-owned enterprises and paying circular debts. No government has ever bothered to start privatization process. Borrowed funds are utlised for extending subsidies to the private sector to boost exports. While seeking International Monetary Fund’s (IMF) help through Extended Fund Facility (EFF) programme, Pakistan agreed to initiate the process of streamlining State-Owned Enterprises (SOEs).

Despite agreeing to reduce the footprints in SOEs as well as divestment of two LNG-based power plants, one development finance institution, and one small public bank the government has failed to honour its commitment even after a lapse of four years since the programme.

Entities like Pakistan Railways, Steel Mills, and other loss-making commercial institutions are being run at the taxpayers’ expense. These institutions should be made liable to meet their own financial requirements. Citizens should not pay for the failure of their rulers to improve the governance system and streamline fiscal management.

In its recent report, Pakistan Development Update, published in April 2023, the World Bank has highlighted the difficulties faced by our economy. It has stressed the revival of IMF, and EFF programme to avoid economic crisis and to restore confidence of the consumer and investor. The report further suggests that for the country’s stability, the government should introduce structural reforms to secure critical financing from bilateral partners and IMF.

The report states that to maintain stability and medium-term recovery, the government of Pakistan should sustain IMF programme reforms and continue to adhere to overall sound macroeconomic management, including maintaining a flexible exchange rate and independent monetary policy, targeting inflation. It further suggests that the government should progressively remove all import and dollar outflow restrictions, including curbs on profit and dividend outflows, to restore investor confidence.

The report suggests that the government should contain the primary deficit within sustainability parameters through measures to increase revenues and rationalize expenditure and implement trade and private sector reforms to support improvements in investment, competitiveness, and productivity.

Strong political ownership is required to ensure that reforms are credible and sustained over time. While analyzing the general economic conditions of Pakistan, the report states that the overall economic activity remained subdued in the first half of the current fiscal year due to flooding, along with difficulties in securing fertilizers and animal feed that reduced the agricultural output and labor opportunities for low-income workers. It further mentions that dwindling foreign exchange reserves, administrative import controls, flood-related supply-chain disruptions, high fuel costs, policy uncertainty, and slowdown in domestic and global demand have affected industry and service sector activity, contracted the large-scale manufacturing by an average of 3.7% in first half of the current fiscal year. The report says that due to these reasons, consumer confidence would continue to decline in the coming months as well.

In the last one and a half years, Pakistan government tightened its monetary policy to control inflation. The report also highlights that inflation rose to a multi-decade high: an average of 25 percent year on year (y-o-y) in the first half of 2023 from 9.8 percent during the first half of FY 2022. Rise in inflation is due to global commodity prices, reversal of unsustainable domestic fuel/electricity subsidies, and flood-related disruptions, the report mentions.

Though the current deficit was reduced in the first half of FY 2023, however, Pakistan’s external position weakened due to a reduction in the foreign exchange reserves. Import restrictions drove a 32 percent y-o-y contraction of the trade deficit. However, it negatively impacted import-dependent businesses. The country also witnessed a decline in foreign remittances with the informal exchange rate cap incentivizing the use of informal non-banking channels.

The overall current account deficit is US$3.6 billion in the first half of the financial year 2023 as compared to a US$9 billion deficit recorded in the first half of FY 2022. The report further states that despite consolidated efforts fiscal deficit widened over the first six months of the year. Moreover, limited access to the global capital market forced the government to an expensive domestic financing to bridge fiscal needs.

The report states that the outlook of the country is highly uncertain and hinges on strong political ownership and effective implementation of critical reforms in the wake of which expected GDP growth is projected to recover gradually but likely to remain below potential over the forecast horizon. Presently, the projected real GDP growth for the financial year 2023 will remain at 0.4%, and the forecast for the financial year 2024 and 2025 is 2 and 3 percent respectively. The current account balance as a percentage of GDP for FY 2023, 2024, and 2025 will be -2, -2.1, and -2.2 percent respectively.

The fiscal balance narrated in the report excluding grants for financial years 2023, 2024, and 2025 is projected as -6.7, -6.3, and -6.1 percent of the GPD respectively. Similarly, the projection for public debt, including government-guaranteed debt for financial years 2023, 2024, and 2025 is 74, 72.1, and 72.2 percent of the GDP for these years.

Though the current account deficit was reduced due to various steps taken by the government, this measure somehow impacted the private sector growth as well. The report projects that Pakistan’s GDP as well as other sectors will grow in the coming years. However, it is conditional to the introduction of critical reforms and political stability.

The forecast of Pakistan’s GDP growth in the current as well as the coming year does not corroborate with Pakistan’s economic profile which shows that the people of Pakistan will continue to struggle for meeting their basic needs. Issues such as unemployment and inflation will remain the main concerns for the government. Therefore, for long-term stability in the country, the introduction as well as implementation of fiscal reforms, is inevitable.


Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media and cyber laws, ML/CFT, IT, intellectual property, arbitration and international taxation. He holds LLD in tax laws with specialization in transfer pricing. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He served Civil Services of Pakistan from 1984 to 1996. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation.  He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE).

He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition,  Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes (revised/enlarged edition of December 2020), Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary and Master Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis).

The recent publication, coauthored with Abdul Rauf Shakoori and Huzaima Bukhari is Pakistan Tackling FATF: Challenges & Solutions

available at:  and

He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequel Pakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax. He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.

Abdul Rauf Shakoori, Advocate High Court, is a subject-matter expert on AML-CFT, Compliance, Cyber Crime and Risk Management. He has been providing AML-CFT advisory and training services to financial institutions (banks, DNFBPs, investment companies, money service businesses, insurance companies and securities), government institutions including law enforcement agencies located in North America (USA & CANADA), Middle East and Pakistan. His areas of expertise include legal, strategic planning, cross border transactions including but not limited to joint ventures (JVs), mergers & acquisitions (M&A), takeovers, privatizations, overseas expansions, USA Patriot Act, Banking Secrecy Act, Office of Foreign Assets Control (OFAC).

Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate, media, ML/CFT related laws, IT, intellectual property, arbitration and international tax laws. He is country editor and correspondent of International Bureau of Fiscal Documentation (IBFD) and member of International Fiscal Association (IFA). He is Visiting Faculty at Lahore University of Management Sciences (LUMS) and member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). He can be reached on Twitter @DrIkramulHaq.


  1. The article discusses the economic challenges facing Pakistan due to poor governance, imprudent economic policies, and lack of fiscal management. The author, very aptly, highlights the need for structural reforms, including privatization, reduction of debt servicing, and streamlining of State-Owned Enterprises (SOEs). The World Bank’s recent report on Pakistan’s economic situation is cited, which emphasizes the importance of reviving the IMF’s Extended Fund Facility (EFF) program, introducing structural reforms, and implementing trade and private sector reforms. The article concludes by stressing the need for strong political ownership and effective implementation of these critical reforms to restore confidence in the economy and avoid an economic crisis. I commend the author for his insightful analysis of the current economic situation in Pakistan and his emphasis on the need for critical reforms to address the country’s economic challenges.

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