Global Competitiveness: Challenges & Solutions for Pakistan

Economy of Pakistan has shown resilience to sustain growth in recent years even with evident macroeconomic imbalances and structural problems. On the fiscal side, the country has one of the lowest taxes to GDP ratio, mounting fiscal deficit and consistently growing government borrowing. On the monetary side, the central bank has to follow the fiscal directions and keep policy rates high amidst heavy government borrowing and high levels of inflation. On the external side, the economy faces rising trade deficit, steep decline in rupee and freeze in foreign investment. On the structural side, the country has a severe energy crisis, distortionary utility prices and distribution and political stalemate to engage in any serious economic and political reforms. In this paper, we document the key challenges to the economy and suggest policy solutions. We argue that the country has to resolve energy crisis with investment in renewable energy. The government has to protect private property rights, improve governance and instigate deep fiscal reforms to reduce its size and crowding out impacts. We also suggest how the country shall revise its trade policy with product and market diversification and establishing new relations with cheap import sources.