Despite recent optimism surrounding Pakistan's economy, the country is facing an "existential crisis" stemming from its woeful tax collection rates and inability to finance itself, a report said Wednesday.
Pakistan's economy grew at 4.24 per cent during the 2014-2015 fiscal year with per capita income rising a significant 9.25 per cent, markers that come as investor confidence in the long- underperfoming South Asian giant have also increased.
But according to the report by non-profit organisation Raftar, funded by Britain's Department for International Development (DFID), Pakistan's economy continues to rely heavily on "commercial loans, concessionary donor loans and aid".
The country's tax-to-GDP ratio of 9.4 per cent is among the lowest in the world, leading to a public debt of 17 trillion rupees ($163 billion).
This an almost three-fold increase since 2008 for the $232 billion economy, with 44 per cent of tax revenue going toward interest payments.
The report blamed the lack of a "tax culture" on non-revenue sources of funds the country has historically enjoyed in the form of foreign aid and loans. It said 68 per cent of tax revenue was being generated through indirect taxes on fuel, food and electricity, which unfairly penalises the poor.
The lack of revenue collection also negatively affects infrastructure development including power generation, with the country facing a massive shortfall of up to 4000MW in the summer that shaves about $15 billion off the country's GDP.
Pakistan is currently in a $6.6 billion loan programme with the International Monetary Fund, which was granted on condition that Islamabad carried out extensive economic reforms, particularly in the energy and taxa- tion sectors.
Meanwhile, Pakistan's growing economy is stable enough to stand up to the global and local stock market downfall emerging from China, the world's second-largest economy, a business leader said Wednesday.
The local stock market panic appeared to be easing following a dramatic sell-off by investors who blindly followed foreign investors to overreact, said President Pakistan Businessmen and Intellectuals Forum (PBIF) and former provincial minister Mian Zahid Hussain.
Ups and downs in the stock markets is a normal phenomenon and some volatility was likely to continue but the recent falls had been overdone, he added.
Talking to business community, he said that stock market should not be considered real economy and it should not be linked to GDP.
He said that the crisis took birth in China where the market is still 50 percent higher than the corresponding period.
Local brokers and investors shouldn't have followed foreign investors who have only 10 percent in market capitalisation and 30 percent share in free-float shares; they have a different mentality and different goals, he added.
Mian Zahid Hussain who is also President of All Karachi Industrial Alliance said that those comparing China crisis with global economic crisis of 2008 are pessimistic.
He said that government should keep an eye on stock market, dollar and those trying to manipulate the situation, improve existing guidelines and laws and overcome mafia which deprived masses of billions is the stock market crash seven years ago. He said that despite some anxiety, the Pakistan's stock market which has climbed by 12 percent in 2015 will continue bullish trend if reforms were introduced immediately.