This op-ed was originally published in Pakistan Today on 12 September 2023.
Writing in the aftermath of Pakistan’s near-sovereign-default — and despite the July 2023 approval of a US$3 billion IMF Stand-By Arrangement (SBA) — Dr. Mohey-ud-din argues that the country’s economic challenges have not been alleviated by short-term stabilisation. Escalating electricity and fuel bills, a depreciating rupee, and widespread public and business discontent point to structural deficiencies that no bailout can cure. What Pakistan requires, he argues, is a complete economic metamorphosis.
The diagnosis is built on striking data. Pakistan’s tax-to-GDP ratio stands at approximately 9.3 percent — far below the Asia-Pacific average of 19.8 percent and India’s 17.7 percent — reflecting chronic failure in revenue mobilisation. The consumption-led growth model is equally alarming: final consumption expenditure constitutes 96.24 percent of GDP (World Bank WDI), leaving gross domestic savings at a mere 3.76 percent — compared to China at 46 percent, India at 29 percent, and Bangladesh at 26 percent. With gross capital formation stuck at around 15 percent of GDP and domestic savings financing barely a quarter of that, Pakistan is structurally dependent on external borrowing, which perpetuates currency depreciation and escalating debt. The underlying driver of high electricity tariffs and fuel prices, the author argues, is this very failure of the tax system — indirect levies fill the fiscal gap that direct taxation should cover.
The path to transformation, Dr. Mohey-ud-din contends, is multifaceted: tax base broadening to include previously exempt sectors, energy sector reforms to reduce transmission and distribution line losses and diversify the energy mix, and a decisive strategic shift from consumption-led to investment-led growth. Longer-term, these must be grounded in genuine political commitment and long-term planning — not cyclical crisis management. Immediate, actionable steps in energy reform, tax-to-GDP improvement, and domestic savings mobilisation, he concludes, are the only credible starting point for a genuine economic metamorphosis.
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