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10 June,2022 , 03:36 amAdmin

Comparison of Pakistan’s Poor Economic Condition

Following a no-confidence motion against the incumbent. Shahbaz Sharif vows to as Pakistan's new Prime Minister on April 11. After the incumbent resigned, Ranil Wickremesinghe took oath as Prime Minister of Sri Lanka for the sixth time a month later.

While politics in these countries is turbulent, the leadership changes are directly related. To Pakistan's and Sri Lanka's economic mismanagement. Which is common in Pakistan and is becoming common in Sri Lanka.

The economic condition in Sri Lanka

The economic condition in Sri Lanka

People in Sri Lanka have been suffering from crippling inflation. Fuel, power, food, and medicine shortages, and a currency that is falling at an unprecedented rate. This economic hardship, combined with rising mistrust of the governing Rajapaksa family's leadership style. This resulted in spontaneous and widespread protests. Culminating in the eventual resignation of President Rajapaksa.

His younger brother, Gotabaya Rajapaksa, is still President of the Republic at the time of writing.

Pakistan has a comparable, albeit less dramatic, story to tell. Its vast population of impoverished and/or informal laborers. Indicates high sensitivity to inflation, and a Gallup poll conducted in January 2022. Indicated that the majority of Pakistanis viewed inflation to be the country's most serious concern. It's not going to help if the currency is depreciating.

Economic mismanagement leads to inflation

People have also been dealing with power outages. Which has added to the agony caused by Pakistan's harsh heatwaves (as well as India). This economic mismanagement prompted Prime Minister Imran Khan and his cabinet. To face a successful no-confidence vote, paving the path for his replacement.

Other South Asian countries have not relied on the IMF as much. Bangladesh has 12 IMF agreements, Nepal has eight, and India has seven. India's most recent trip to the IMF was in 1991 when it hit a financial crisis.

Economic mismanagement leads to inflation

In Sri Lanka and Pakistan, the ailment is widespread

The seeds of Sri Lanka's crisis were sown in 2005. When the country's government began a spending spree on several massive infrastructure projects. Many of which were of doubtful economic worth. After the Civil War ended in 2009, this trend accelerated. For a few years, growth accelerated, but the trend proved unsustainable.

In Sri Lanka and Pakistan, the ailment is widespread

Furthermore, since the early 2000s. An increasingly complex and opaque maze of levies and hidden tariffs have been imposed on imports. Strengthening the policy bias against exports. With increased vigor after the Rajapaksas returned to power after a four-year hiatus in 2019.

Total commerce as a percentage of GDP in Sri Lanka declined from 89 percent in 2000 to 46 percent in 2010. An unprecedented drop in a modern economy. It was 52 percent in 2019.

Due to the necessity to pay massive trade deficits and the debt overhang. Foreign debt grew and external reserves shrank. Finally contributing to the April 12 sovereign debt default.

Pakistan’s economic crisis

Pakistanis have become accustomed to inept economic leadership. The economy is plagued by several concerns, but the fundamental issues include the domination of the "moneyed elite". Another term for crony capitalism. Which creates an anti-competitive environment and decreases economic dynamism. The lack of long-term democracy; and the predominance of extremism.

Pakistan’s economic crisis

As a result, these factors contribute to a climate of protection against foreign and local competition. Low tax revenues, and low investment. With a mix of tariffs and disguised duties, Pakistan's economy is highly protected. Resulting in a stagnating export sector and recurrent foreign exchange problems. The Pakistani economy pays a huge price for its lack of a strong economic link with India. Its exports could be 80 percent higher if it dealt with India to its full potential.

Tax Collection

Tax collections are low compared to peers. And interest payments account for about half of tax revenue. Due to significant fiscal deficits. And an investment is half that of the rest of South Asia. Resulting in growth that falls far short of Pakistan's potential.

Tax Collection

Pakistan has seen repeated periods of macroeconomic crisis. Because these underlying restrictions have not been successfully addressed.

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