Can digitalization of an economy help overcoming the existing economic crisis of Pakistan?

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digital economy and pakistan

The process of digitalization is having a positive impact on the economies of many countries and in Pakistan, it has a potential to overcome almost all its existing economic crisis. It will create “ease in doing business.” The improvement in business regulations will boost trade and solve many economic issues including poor investment. Besides, it will raise Pakistan’s export by replacing traditional trade with the e-commerce. Moreover, the digitalization will make it easy for the government to document the economy and collect more tax revenue, thus solving the issue of fiscal deficit. Furthermore, the process will help the government to balance its taxes between services and manufacturing sector to make the latter sector more competitive and create an opportunity for the young generation to make multi-billion companies with little cash in their pocket. As a result, these companies will bring large revenue from all over the globe inside the country and address the balance of payment crisis. In addition to this, the digitalization will replace the existing colonial institutions with high-tech corporate sector. It will reduce corruption, eliminate bureaucratic red tapes and ensure the smooth flow of business activities in the country. The rupee will remain stable for the long time and inflation will be under control because the process will make it difficult for the people to hide or laundered their black money obtained through illegal practices. Thus, the digitalizing of an economy will solve the existing economic issues of Pakistan including fiscal deficit, devaluation of local currency, poor investment, inadequate export and inflation among others.

The digitalization will make the conduct of business activities plain sailing. It can be proved from the fact that when the existing PTI-led government took some measures to digitalize the economy like allowing companies to obtain electricity connection and pay taxes online, the World Bank, in its report of “Ease in Doing Business” improved Pakistan’s position from 136 to 108 place. When the business is facilitated and impediments are removed from its way, the Foreign Direct Investment (FDI) starts to pour in the country from all around the globe and trade begins to flourish. Consequently, some economic issues like balance of payment crisis and fiscal deficit are addressed. It is, therefore, the process of digitalization will resolve the existing economic crisis by sky rocketing the trade activities in the country.

It will replace the traditional trade with the e-commerce and provide an opportunity to the citizens to boost export by selling local products online across the globe. Pakistan’s export is comprised of small textile and agriculture products that can easily be sold across the world using digital applications like Alixpress and Amazon. At the present moment, no such online platform is available to become a part of international trade. Asad umer, while he was the finance minister, realized the importance of e-commerce and digital economy to surge the export of the country. He tried to bring PayPal for this purpose, but failed owing to the poor cyber security of Pakistan. Thus, the digitalization will solve the trade deficit of Pakistan by introducing e-commerce.

 The next biggest benefit of the digitalization, of course, lies in the fact that it will help the government in documenting the economy. The actual Gross Domestic Product (GDP) of Pakistan, according to many economists, is almost double the present figure. The documenting will not only bring out the real GDP, but also register nearly all traders and companies and close a loophole for them to evade tax obligation. As a result, more tax revenue will be generated and it will contribute to overcoming the existing fiscal deficit. Hence, the process will address the basic economic challenge of Pakistan-fiscal deficit-by enabling it to generate more revenue.

It will also facilitate the government to balance its taxes between the services and manufacturing sector and make the latter sector more competitive in the global market. It is known fact that the manufacturing sector contributes greatly to the economy of any country. At present, the manufacturing sector is heavily taxed in Pakistan that stymies its growth. The tax on this sector is more than the average tax in the world. On the contrary, the services sector that contributes around 59 per cent in the GDP of Pakistan is exempted to a larger extent and it can be learnt from the inadequate tax payment of doctors, accountants and lawyers, although, they earn a large amount of money. Currently, the government cannot afford to lower the tax from the manufacturing sector because the country is already facing severe fiscal deficit. However, the process of digitalization will lend a helping hand to the government to produce more revenue from the services sector and put it in the position to afford lower taxes from the manufacturing sector. As a result, the manufacturing sector will start to flourish and contribute in overcoming many existing economic crisis of Pakistan including inadequate export.

Another important benefit of the digitalization is that it will create an opportunity for young generation, with little cash in pocket, to make multi-billion companies in Pakistan. It was an early digitalization process that enables the young citizens of the US to make companies like “Amazon” and “Wal-Mart.” It was also because of digitalization that some social media platforms like “Facebook”, “YouTube”, “Twitter” and so on were launched that are generating billions of dollars and assisting their country in the form of bringing more revenue from rest of the world. Similarly, in Pakistan, the young generation will get an opportunity to developed digital companies like the West. These companies will bring the revenue to the country from all around the globe. Thus, the process will solve the problem of balance of payment crisis among others.

It will replace the existing colonial institutions with the high-tech corporate system and totally alter how the people interact with the government. Handwritten files and procedure will be taken over by computerised programs and the citizen will be given an option to directly approach the concerned department by submitting online applications and receiving its reply in the same way without needing to personally visit the office or meet the officials.  This system will be beneficial for the economy in many ways: First, it will prevent the public servants from causing loss to public exchequer by closing their all doors of corruption. The recent report by the Federal Board of Revenue (FBR) clearly mentioned that the custom department was involved in helping the importers to get their containers passed without getting the custom duties paid. Second, it will make the complain system more effective after the launching of digital applications like “Citizen Portal”. As a result, the public servants will solve the dispute related to trade in an expeditious manner. Thus, it will decline corruption and ensure the impetuous dispute resolution that will eventually contribute to the flourish of trade in the country and solve many economic related issues.

The local currency will remain stable after the process of digitalization and it will be a great setback to the inflation. Because of some obvious reasons, the rupee will retain its value. Firstly, it will cause the circulation of money owing to a surge in trade activities. It is known fact that the circulation of the money in the market makes the currency stable. Secondly, the documentation of the economy and registration of people with the tax institution will make it difficult for the people to launder the local currency abroad. The devaluation of currency is directly linked to the money laundering in the form of foreign currency.  Finally, the culture of purchasing foreign currency will be diminished due to stabilization of the local rupee. Hence, the digitalization will cause the circulation of money and prevent the money laundering. As a result, the daunting issue of inflation will be addressed.

In order to achieve the goal of digitalization, it is imperative for the government to improve the literacy rate of Pakistan. With around half the population being illiterate, the people will find it difficult to become a part of digital economy. Without the cooperation and participation of the citizens, all the efforts of the government in the direction of the digitalization will reduce to ashes. It is, therefore, more important for the government to pay extra attention to the education of the people.

The government also needs simplify the income tax registration procedure to encourage more and more people to register with the tax institution and declare their original wealth. Presently, one has to go through cumbersome tax procedure to even file one’s income tax return. The government has taken measures to simplify the process by launching “Tax Assan” application, but it needs to introduce even easier way for the registration keeping in view the poor literacy rate of Pakistan. As such, the simple procedure must be adopted to motivate more people to become a part of digital economy.

The government should lower the import duties on the laptops and mobile phones to make them affordable for all the citizens. These devices are crucial part of the digitalization. The digital economy involves the use of plastic currency and conducting e-commerce. It is, therefore, a country cannot become a part of digital economy, unless all its citizens could afford these devices. The federal government, after realizing their importance, has recently lowered the duties. However, there is a need for further reduction in the taxes to increase their use in the present age of technology.

The government of Pakistan has to improve its cyber security and protect its citizens and their online business from digital fraud and theft. The government lags behind in the technology to ensure full safety and security. It needs to seek help from the friendly country China to improve its capability to become part of digitalization process in an effective way. Besides, it also needs to improve its image among the foreign people so that they could trust Pakistani online business platforms. Currently, the PayPal refused to start its service in Pakistan because of trust deficit. It is irony of fate that we do not have our own secure payment system to receive money by conducting e-commerce. Thus, the government should improve cyber security and reinstate confidence among foreigners regarding the online business.

The government should provide fast speed Internet service to the citizens because it is a foundation over which the entire infrastructure of digital economy is built. The digital system runs on the Internet because it keeps people around the globe connected and helps them to share different data. Irony, the service is not available in many rural areas of Pakistan. Besides, the local people face multiple challenges from Internet provider, as there is no proper check by the government over its quality. In order to make more money, the providers sell as many connections as possible without maintaining the speed and quality. As a result, the user faces unlimited challenges. The issue of Internet must be the top priority of the government before taking any step ahead to in the direction of digital economy.

Uninterrupted supply of electricity is also fundamental pre-requisite for the success of the digitalization process. The digital economy involves the use of devices and services that require electricity. There should be continuous supply of the electricity in the country to keep the wheels of digital economy move. Load-shedding or other issues that can cut its supply may completely collapse the structure on which the entire system is placed. Thus, the continuous supply of electricity is required to give practical shape to the vision of digital economy.

As such, the digitalization of the economy will solve the existing economic crisis of Pakistan ranges from fiscal deficit, poor investment, gap between export and import, balance of payment crisis, to inflation. It will flourish the trade by addressing all its impediments. Consequently, the investment will start to flow in the country resolving the issue of poor investment. By documenting the economy and switching to e-commerce after the digitalization, the economic issues like fiscal deficit and inadequate export will be solved. The multi-billion online companies will be launched and bring a large revenue from all around the globe to solve the issues like balance of payment crisis. The rupee will remain stable because the digitalization will improve the governance and block an easy route for the offender to launder money or earn it through illegal practices. The stability of local currency will be setback to the inflation. The government needs to improve literacy rate, increase the use of electronic devices among the citizen by making them affordable, reinstate confidence among foreigners to do trade with Pakistan online by increasing cyber-security. Besides, it must make available the uninterrupted supply of Internet and electricity to the people at a relatively cheaper rate. Thus, fiscal deficit, poor investment, inadequate export, balance of payment crisis and inflation, all these economic issues can be resolved by introducing digital economy in Pakistan.


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