Debt Ad Infinitum: Pakistan's Macroeconomic Catastrophe

It was a typical Friday afternoon when Mr. Akhtar visited his local grocery store to buy some basic necessities for the weekend. Being a retired government employee with a fixed monthly pension, he always kept a close eye on his expenses. However, to his dismay, the prices of almost all items had risen exponentially in just a matter of weeks. Even the price of his favorite brand of tea had almost doubled.

This incident is not unique to Mr. Akhtar. The whole nation of Pakistan is currently going through an economic crisis where inflation is at an all-time high, unemployment is soaring, and the value of the national currency is depreciating rapidly.

The roots of this crisis can be traced back to the country's burgeoning debt. As of December 2020, Pakistan's total debt stood at a staggering $108 billion, which is around 87% of GDP. To make matters worse, the government has been borrowing more than it can repay, resulting in a never-ending cycle of debt ad infinitum.

The government's inability to control its spending has put a severe strain on the country's macroeconomic stability. Pakistan's debt-to-GDP ratio has been increasing every year since 2013, making it one of the most indebted countries in the world.

One of the primary reasons for this economic crisis is the government's failure to increase revenue. Pakistan's tax-to-GDP ratio is only 11%, which is the lowest in the region. The government's reliance on borrowing to finance its spending has resulted in an unsustainable level of debt.

Furthermore, corruption and mismanagement of funds have aggravated the crisis. State-owned enterprises, like Pakistan International Airlines (PIA) and Pakistan Steel Mills (PSM), have been a significant drain on the country's resources. These entities have been plagued by persistent losses, and the government has been continuously bailing them out, adding to the debt burden.

Pakistan's economic crisis has resulted in severe consequences for the average citizen. Inflation has reached double digits, making it impossible for people like Mr. Akhtar to afford basic necessities. The job market is also in shambles, with a high number of educated youth finding themselves unemployed. Moreover, the depreciation of the national currency has resulted in decreased purchasing power for the common person.

Pakistan needs to take immediate measures to curb its debt and stabilize its economy. Here are three practical steps that the government can take to mitigate the crisis.

1. Increase Revenue

Raising revenue is one of the most critical steps that the government can take to address the crisis. The country's tax structure needs to be reformed, and tax evasion needs to be tackled head-on. The government also needs to encourage a culture of paying taxes by providing incentives and making the tax collection process more transparent.

2. Privatize State-Owned Enterprises

Privatization of loss-making state-owned enterprises can help reduce the burden on the government. The proceeds from the sale can be used to pay off loans and reduce debt. Moreover, privatization can improve the efficiency of these entities and make them more profitable in the long run.

3. Fiscal Consolidation

The government needs to focus on reducing its expenses. This can be done by cutting unnecessary spending and prioritizing projects that generate long-term benefits for the country. Additionally, the government needs to avoid borrowing more than it can repay and focus on paying off its existing debt.

In conclusion, Pakistan's debt ad infinitum has resulted in an economic crisis that is affecting all segments of society. The government needs to take immediate action to stabilize the economy by increasing revenue, privatizing state-owned enterprises, and focusing on fiscal consolidation. It is only by taking these measures that the country can overcome its current economic challenges and build a sustainable future for its citizens.

References:

1. International Monetary Fund. (2020). Pakistan: 2020 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Pakistan. https://www.imf.org/en/Publications/CR/Issues/2020/12/18/Pakistan-2020-Article-IV-Consultation-Press-Release-Staff-Report-and-Statement-by-the-49949

2. World Bank. (2021). Pakistan Economic Update, Spring 2021. https://www.worldbank.org/en/country/pakistan/publication/pakistan-economic-update-spring-

3. Chaudhry, I. S. (2019). The Impact of Economic Crisis on Pakistan's Society: A Case Study of Inflation, Corruption, and Unemployment. Journal of Applied Economics and Business Research, 9(4), 199-208.

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