Energy and Tax Reforms: Household Analysis from Pakistan

Type Conference Paper - 5th South Asia Economic Summit, 11-13th September 2012
Title Energy and Tax Reforms: Household Analysis from Pakistan
Publication (Day/Month/Year) 2015
Pakistan’s economy has been confronted with low growth equilibrium since 2008. The national
income has been growing at a dismal average annual rate of 2.9% since 2009. The investment to
GDP ratio is one of the lowest across the Asian countries and was recorded at 14.8% in 2013. While
there have been recent analyses on the binding constraints to economic growth, however most of
these point out towards the country’s inability to design and execute important structural reforms
related to energy, taxation, loss making public sector enterprises, deregulation, and privatization
(GoP 2011 & Ahmed et al. 2013).
Out of the past 28 years, Pakistan remained under an International Monetary Fund (IMF)
programme for 23 years. This prolonged relationship has been primarily a result of the poor fiscal
discipline. Total revenue collected by the government, using tax and other measures, is around 13%
of GDP, which is the lowest among all emerging economies. The revenue collected is not nearly
sufficient to meet public expenditures, which has averaged 20% of GDP over the past five years. The
result is high government borrowing that has led the country into a ‘debt-trap’.
The lack of fiscal space has also not allowed the state machinery to invest in infrastructure and
social services. Pakistan spends 0.7% of GDP on health. This is less than half of what other
governments in lower middle-income countries spend on health. On elementary education,
Pakistan spends less than 2% of GDP. This is also low when compared with countries with similar
income levels. The energy crisis remains under the regulated control of the government, which in
turn is unable to provide the liquidity even for the maintenance of existing power plants.
The low public spending on welfare and disruptive inputs for growth has resulted in Pakistan’s
poor performance towards MDGs attainment (GoP 2013). Pakistan is off-track in case of 24 out of
34 MDG indicators. This effort is further challenged by two non-economic factors, including: a)
increased militancy and deteriorating law and order, and b) recurrent natural disasters. Local
conflicts continue to strengthen local incidences of malnutrition and delivery of immunization
services, which in turn will have an impact on the productivity of the future labour force in

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