“Trust is the glue of life. It’s the most essential ingredient in effective communication. It’s the foundational principle that holds all relationships.” – Stephen R. Covey

In the bustling city of Karachi, an ad agency once thriving now grapples with shrinking budgets, rising operational costs and a disillusioned workforce burdened by higher taxes and inflation. This situation mirrors the broader economic struggles across Pakistan, exacerbated by FY 2024-25 budget announcement. Businesses, including those in the marketing and advertising sectors, are facing an unprecedented economic storm and the question of survival looms large.

Pakistan’s economic growth has been anaemic, reaching a mere two percent in the last fiscal year – significantly below the 6.3% average growth rate for the South Asia region, as reported by the International Monetary Fund (IMF). This disparity reflects deeper issues rooted in decades of poor governance, corruption and broken promises. The erosion of public trust in state institutions has fostered a scarcity mindset, where individuals and businesses prioritise self-preservation over collective progress. This lack of trust has stifled investment and innovation and led to a brain drain, depriving Pakistan of its most valuable asset: human capital.

Rebuilding trust can yield significant economic benefits. According to a report by Deloitte, a meta-analysis of economic research suggests that a 10 percentage point increase in the share of trusting people within a country can raise annual per capita real GDP growth by 0.5 percentage points.

Good governance is crucial for building this trust. Citizens need to be assured that austerity measures imposed to overcome a crisis are utilised judiciously, fairly and efficiently. Yet, according to the 2023 Governance Efficiency Ranking by SolAbility, Pakistan ranks 157 out of 180 countries, highlighting the need for substantial administrative reforms.

Nepotism is a key factor driving incompetence and corruption in state institutions, which is critical to address. Otherwise, the leaky economy will curtail economic revival, and the resulting imbalance will drive social unrest.

Pakistan’s unique geopolitical situation further complicates its economic challenges. As a young country in a volatile but strategic region, Pakistan’s economic stability is often intertwined with its foreign policy and relationships with major powers like China and the US. The balancing act is complex. Reliance on external debt from China raises concerns about debt sustainability and potential economic vulnerabilities, while the US, its largest trading partner, tilts towards India amidst its rivalry with China.

A self-inflicted challenge is Pakistan’s population explosion. With low literacy levels and limited resources, the burden of generating revenue falls disproportionately on those already heavily taxed and who receive little benefit to justify these taxes. This drives many to seek opportunities abroad. While increased remittances can provide short-term relief, the resulting brain drain has long-term consequences, including reduced tax revenues and lower productivity.

In this context, the IMF-driven budget places a heavy burden on businesses and individuals, with increased taxation aimed at servicing the unwieldy sovereign debt. The higher tax burden on salaried individuals, coupled with rising costs due to indirect taxation, could further dampen consumer spending, potentially affecting advertising budgets. SMEs, in particular, may struggle with low or no revenue growth and an unsustainable tax burden, making survival difficult.

To navigate this climate of uncertainty, the government’s role extends beyond merely crafting economic policies. It must actively work to rebuild trust by fostering transparency, accountability, and open communication.

This includes explaining the rationale behind the budget’s measures and involving citizens in the economic decision-making process. Unfortunately, decades of poor governance, political mudslinging and shallow accountability have led to the maligning of political parties and state institutions, fuelling the nation’s despondency.

Countries like Greece, which faced a severe sovereign debt crisis in the 2010s, provide valuable lessons. Greece required three rescue packages from 2010-15, totalling $343 billion, with strict austerity terms lasting nearly a decade. The Greek government implemented spending cuts, tax increases and pension reforms while establishing targeted social safety nets and structural reforms. While Greece’s journey has been painful and tested the nation’s resilience, the country has made a solid, if not spectacular, recovery since the crisis.

Pakistan’s government, which is following a similar list of prescribed measures as Greece, must empathise with the people’s pain and clearly communicate its plan to fulfil its goal of ensuring that the current IMF programme is the last one. A concerted effort is needed to explain the difficult choices being made and the potential benefits of reforms. To counter scepticism and perceived biases, government spending and decision making processes should be transparent, with data shared and public consultations held. Regular communications can help send the right signals to both internal and external stakeholders and mitigate risks of misinformation. Given the free flow of information and a connected world where capital flows can be relatively fluid, messaging and optics are important to control.

Beyond rebuilding trust, the government must also focus on removing unnecessary barriers for businesses. Streamlining bureaucratic processes, reducing red tape and creating a more predictable and business-friendly regulatory environment are essential.

One area where this is particularly crucial is taxation. The current system often burdens businesses with the responsibility of acting as withholding agents for taxes, which is cumbersome and inefficient. This diverts valuable time and resources away from core business activities, especially for SMEs.

By gradually phasing out the withholding agent concept and simplifying tax processes, the government can encourage compliance and free up businesses to focus on creating jobs, generating revenue, and contributing to economic growth. Given the current economic challenges, this is the least the government can do to provide some relief.

The 2024-25 budget serves as a stark reminder of the challenges facing Pakistan. Businesses, including marketing and advertising agencies, will need to manage a workforce impacted by higher direct and indirect taxes with empathy while seeking growth in an uncertain and inflationary environment. The prospect of global and domestic rate cuts offers some hope for near-term growth. However, it is crucial to enhance productivity and make Pakistan’s offerings more competitive through investment in skill-building.

The road to recovery will be long and arduous, but it is not impossible. By learning from the experiences of countries like Greece, focusing on rebuilding trust, rewarding meritocracy, and removing unnecessary friction for businesses, Pakistan can overcome its current challenges and move towards sustainable growth.

“The ultimate test of leadership is not where you stand in moments of comfort and convenience, but where you stand in times of challenge and controversy.”
– Martin Luther King Jr.

Amin Rammal is a marketing technology enthusiast and Director, Asiatic Public Relations. amin.rammal@gmail.com