Pakistan's economic crisis has led to suggestions of demonetizing the ₹5,000 note to stimulate the economy. Ammar Khan, a Pakistani economist, suggests that the country should follow India's example, whose demonetization helped boost tax collections. Khan notes that there is an ₹8 billion trillion of cash in Pakistan's economy, which is not being taxed. The economist believes that if the cash was removed from the system, it could be reallocated, allowing the banks to lend money, which would boost Pakistan's economy.
Meanwhile, the United States has urged Pakistan to move forward with stalled reforms suggested by the International Monetary Fund (IMF). The IMF has signed a $6.5 billion bailout package with Pakistan in 2019, but less than half of the package has been released due to the country's noncompliance with the conditions. Elizabeth Horst, the State Department official in charge of Pakistan, noted that the reforms agreed upon by the IMF and Pakistan are crucial to bring the country back to sound financial footing, avoid falling into further debt, and grow Pakistan's economy.
The IMF has suggested that Pakistan needs to increase its low tax base, remove tax exemptions for the export sector, and increase artificially low petrol, electricity, and gas prices meant to help low-income families. The United States has pledged to continue supporting Pakistan through technical engagements and assistance in promoting an open, fair, and transparent business climate. Pakistan recently announced a boost of $1.3 billion from China and the United Arab Emirates, two of its closest partners.
Pakistan's economic crisis requires bold and decisive action to stimulate its economy. Demonetizing the ₹5,000 note, as suggested by Khan, could be a step in the right direction, as it would remove cash from the informal economy and increase Pakistan's tax base. Implementing the IMF's suggested reforms would also be beneficial, as it would promote transparency, fairness, and an open business climate. The United States' continued support could prove instrumental in helping Pakistan achieve these goals and pave the way for a more prosperous future.
