Last year, an IMF report maintained that the Pakistani rupee is overvalued. While some quarters dismissed the news, the July 5th’s massive decline of the rupee proved that the IMF’s predictions were pretty reasonable. On Monday, the international organization has come up with another detailed report on the economies of the country. The IMF’s 2017-2018 forecast has hinted at the bleak economic growth in Pakistan, Afghanistan, the Middle East and North Africa. Keeping in view the organization’s ability to predict the economic Armageddon in the making, countries must use the insights to make arrangements for the effective aversion of a potential economic losses in the future.
This probable under-performance of the economies of the above-mentioned countries is attributed to the dip in oil prices, leading to the sudden decline of the Saudi economy, creating ripples of change in the linked economies According to IMF, last year’s performance of these countries was a result of the strong economic growth of Iran whose high crude production led it to mark the growth of more than 6.5 percent.
In the current World Economic Outlook update, Saudi Arabia’s probable growth rests at 0.1 percent. It is at least 0.3 percent less than the economic growth set for the country in the April projections. For Saudi Arabia, this is the worst growth since 2009. The main reason for this is the unabated decline in oil prices. IMF believes that if this decline persists, the actual economic growth can be significantly lower than the projected growth.
However, there is still the light at the end of the tunnel. The IMF has also projected that following the sluggish growth in 2017, the economy is likely to rebound. As of now, the institution believes that the economy will go up by 3.3 percent.
Saudi Arabia’s Bold Steps
In Saudi Arabia, particularly, and other Gulf countries, generally, the decline in oil prices called for a bold reform in pulling the countries out of economic crux. The Kingdom of Saudi Arabia then decided to minimize its heavy reliance on oil and diversify its
According to the unidentified sources privy to the matter, the country has issued its first riyal-dominated debt to multiple countries.
It has also tapped on the dormant housing sector to give boost to its economy. The country is approving the construction of residential villas and compounds that are being constructed under the partnership of local and foreign investors. It has also introduced new taxes like ‘white land tax’ to encourage people with idle property to use the space for commercial purposes. It is also giving out loans to people so that they can either construct or buy property easily.
Timely Measures by Pakistan
Following the example set by KSA, Pakistan -with prudence and wisdom – can strengthen its economy so that the effects of global economic crux are minimized to the maximum. The country’s ranking in equity market performance and economic freedom ranking is better than its neighboring country, India, which is also one of the strongest economies of the world.
If Pakistan can move ahead in this regard, it can do wonders to strengthen its economy even more. Recently, economists and financial analysts criticized the increase in the tax rate imposed on the capital gains — the profit made on the sale of shares and other related stock. They believe that the step will discourage small investors from investing in the stock market.
Similarly, the government’s rate of return for national savings certificate is also quite low. For an investment of Rs100,000, the account holder gets around Rs500 to 700 per month. This is lower than the rates offered by most of the privately-owned commercial banks. Though the rise of commercial banks contributes to the growth of economy, the government should take measures to build public trust to invest in state-owned schemes. While these schemes are low on the risk scale, the government can too use the money to boost the performance of other state-owned institutions and reduce its heavy reliance on foreign investors managing the country’s important institutions, including DISCOs, etc.
Another most important sector that must be considered by the country is its property sector. The recently amended Company’s Law has imposed huge taxes on the country’s property trade, thereby slowing down the market. Though taxes are imposed to keep ‘black money’ away from the market – many people were taking this route to whiten their black money. The foreign investment, which was mainly done by Pakistanis living abroad in the property sector has toppled. The decrease in the foreign remittance will adversely affect the country’s economy.
Country’s policymakers should now look into these sectors to come up with sound strategies to boost the economy. Keeping small investors away from the economy will not yield good results in the long-term.
Moving ahead, since Pakistan is an agricultural country, many experts also believe that it should work on improving the export of fruits and vegetables. The country’s Oranges and Mangoes are famous around the world and, with little efforts, they can dominate the international market.