Imports are increasing due to the growing middle class, which has increased demand for consumer goods such as cars, electronics, and clothing. This has resulted in a large increase in these goods’ imports, contributing to the trade deficit. Another factor contributing to high imports is the decline in exports from Pakistan. The country's exports have been negatively affected by a number of factors, including a lack of access to export markets, poor infrastructure, and a lack of competitiveness in the global market.
In the fiscal year 2022, Pakistan's trade deficit increased due to a significant increase in imports, which was driven by rising oil prices and strong demand for consumer goods. The country's imports in 2022 totaled around $80 billion, while its exports were around $31 billion. The major contributor to the trade deficit was the high cost of oil imports, which accounted for more than 20% of the total imports.
Pakistan has also been trying to increase its exports to help boost its economy. The country has a large potential market in the Middle East, Europe (in terms of textile export), China, and other countries in the region. Apart from diplomacy to negotiate free trade agreements (FTAs) with friendly states to help increase exports, the government of Pakistan should focus on increasing startup and IT exports.
The success of such a policy can be seen in the example of India’s expansion of its IT exports. India's IT industry is now one of the largest in the world, with the country accounting for around 60% of the global market for IT services. It has also made significant investments in STEM education, which has helped to create a highly skilled workforce. The Indian government has been promoting the development of the semiconductor industry through initiatives such as the National Policy on Electronics and the Modified Special Incentive Package Scheme (MSIPS), which attracts foreign investment in the sector, with companies such as Samsung, Intel, and Texas Instruments setting up operations in India. Moreover, India has one of the fastest-growing startup ecosystems in the world and is considered the third-largest startup ecosystem globally, after the United States and China.
To address these issues, governments in Pakistan have implemented a number of measures to try to set the country’s trade balance right. These measures include implementing import tariffs and other trade barriers, and a number of domestic economic reforms, including tax reforms, energy sector reforms, and measures to improve the business environment. The government has also been working to increase exports and attract foreign investment. But no substantial results have been seen as the country’s reserves are dwindling and there is no respite in sight.
Pakistan should focus on untapped sectors and incentivize the sectors that can boost exports and hence, the economy. The shift from energy subsidies, which had been a major drain on the country's finances, to investment in IT, startups, and innovation should be the only way forward. The world is digitizing and moving toward a dependence on digital information technologies. Freelancing may be a stop gap solution, as it provides more opportunities for self-employment and earning foreign currency. The government can invest in developing IT infrastructure and providing access to high-speed internet in order to support freelancers and entrepreneurs in the IT services and software development sectors.
The government can provide training and education programs to help individuals acquire the skills they need to succeed as freelancers, such as digital marketing, graphic design and programming. The government can supplement this by providing financial assistance and resources to help small businesses and entrepreneurs, including freelancers, to start and grow their businesses. The government needs to realize that it can create a more favorable business environment to attract foreign investment in the freelancing sector, by providing tax incentives and simplifying regulations.
The government can start by establishing a IT exports hub or a one-stop-shop for freelancers, entrepreneurs, and small businesses to access resources, training, and networking opportunities. The government can develop a legal and regulatory framework that protects the rights of freelancers, establishes clear guidelines for freelancing, and resolves disputes.
It's worth noting that freelancing can be a great way to provide employment opportunities and support economic growth, especially in a country like Pakistan where the unemployment rate is high. By promoting freelancing, the government can help to reduce unemployment and increase the country's foreign currency earnings.