Pakistanis traditionally give generously to charity, but most avoid paying taxes. Now, charities are feeling the pressure as donations drop amid record-setting 38% inflation. Low tax collection, meanwhile, hurts economic growth, forcing more to rely on charities for survival.

Every day, thousands of Pakistanis come to one of the Saylani Welfare Trust’s free food distribution centers, spread across the country, for a hot meal.

Security guard Muhammad Khursheed is one of them.

He said if the free food from Saylani wasn’t available, he would be spending all his salary on just food.

With an annual inflation rate of almost 38% eating through people’s incomes, Saylani, one of Pakistan’s largest charities, is seeing a rise in daily demand for its free food but a drop in donations.

Suhail Ahamed is a regional manager with the charity.

He said that up until a few months ago, he used to get 30,000 pieces of bread made. Now the number has reached almost 42,000. Donations have reduced but Saylani has not cut down its work, he added.

Charitable giving is a big part of Pakistani culture. In a 2021 Gallup Pakistan survey, around 76% of the respondents said they had given money to help someone in the year before.

At the same time, the proportion of Pakistanis who pay taxes has always remained dismally low.

The country’s tax to GDP ratio is below 10%, meaning the government receives less than 10% of the size of the economy in taxes.

What most countries need to sustain economic growth, according to experts, is a tax to GDP ratio of at least 15%.

Economic researcher Ali Khizar says in Pakistan, huge sectors such as agriculture, trade, retail and real estate use political muscle to keep their taxes low.

“These sacred cows have presence in the parliament. These sacred cows have really strong lobby in the military establishment, and they are very much entrenched in those who are making the decisions,” he said.

A complicated taxation system, ineffective implementation, and lack of trust in the government also cause many to evade taxes.

Broadening the tax net and increasing collection are among the conditions for reviving a stalled 2019 International Monetary Fund bailout deal. However, authorities will likely miss the target.

With Pakistan teetering on the brink of default, and millions getting pushed into poverty because of the rising cost of food and fuel, pressure on charities like Saylani is growing, says regional manager Ahmed.

He said they are very worried that their work may stop but will try their best to prevent that from happening.     
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After his May 29 inauguration, Nigerian president Bola Tinubu announced he would soon end a decades-old fuel subsidy, saying the country can no longer afford the cost. His comments sparked panic buying of gas and raised concerns about inflation in one of Africa’s top oil-producing countries. Gibson Emeka has this report from Abuja.

Camera: Gibson Emeka
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The United States will push back on China’s targeting of American firms, which Washington considers politically motivated and unfair, U.S. Ambassador to China Nicholas Burns said on Wednesday.

Several U.S. companies have faced increased scrutiny in China in recent months, including U.S. memory chipmaker Micron Technology Inc, which China’s cyberspace regulator said in May would be barred from selling to operators of key infrastructure.  

Businesses groups have warned about the rise in China’s use of exit bans, pressure on foreign due diligence firms, and the vague wording of China’s new counterespionage law, which bans the transfer of any information related to national security and broadens the definition of spying.

Burns said five U.S. companies had been singled out by Chinese authorities in recent months: Micron, Deloitte, and consultancies Bain & Company, Capvision, and Mintz Group.

“It’s not happening to companies of other countries, but it is to ours,” Burns told a U.S. Global Leadership Coalition forum in Washington via video link from Beijing.

“It looks political in nature. It looks like payback from the Chinese perspective, and it’s wrong. And obviously we are going to resist this and we are going to push back,” Burns said.

Chinese leader Xi Jinping has emphasized national security since taking office in 2012 as suspicion of the U.S. and its allies grows, but that focus contrasts with Beijing’s message that it is opening up to overseas investment.

The Biden administration has pushed to boost engagement with China even as ties have deteriorated over disputes ranging from military activity in the South China Sea, Beijing’s human rights record, and technology competition.

Chinese officials complain that Washington has put hundreds of Chinese companies under various U.S. sanctions or on export ban lists.  

Burns said the U.S. was restricting American companies’ ability to sell technology such as advanced semiconductors to China so as to not give China’s military a “leg up.”  

“While we compete, it is important that we manage that competition so that it has limits and barriers, and it is always a peaceful competition,” Burns said. 
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The OECD slightly raised its growth outlook for the world economy on Wednesday as inflation eases and China has dropped COVID restrictions, but it warned the recovery faces a “long road.”

The Paris-based organization forecast an economic expansion of 2.7 percent, up from 2.6 percent in its previous report in March, with upgrades for the United States, China and the eurozone.

But it is still under the 3.3 percent growth recorded in 2022.

“The global economy is turning a corner but faces a long road ahead to attain strong and sustainable growth,” OECD chief economist Clare Lombardelli wrote in the OECD’s Economic Outlook.

“The recovery will be weak by past standards,” Lombardelli wrote.

The growth forecast for 2024 remains unchanged at 2.9 percent, the Organization for Economic Cooperation and Development said.

‘Signs of stress’

A drop in energy prices, the untangling of supply chain bottlenecks and China’s sooner-than-expected reopening are contributing to the recovery, the OECD said.

Among its 38 members — an eclectic group ranging from the United States to Germany, Mexico, Japan and New Zealand — inflation is expected to slow to 6.6 percent this year, after soaring to 9.4 percent in 2022.

But core inflation, which strips out volatile energy and food prices, is higher than previously expected, according to the OECD.

The international organization said this may force central banks, which have already raised interest rates in efforts to tame consumer prices, to further hike borrowing costs.

“Central banks need to maintain restrictive monetary policies until there are clear signs that underlying inflationary pressures are abating,” Lombardelli said.

James Pomeroy, an economist at HSBC bank, said: “The period we are going through is slow growth but that’s what policy makers want to see because we are trying to rein in some of the inflationary pressures.”

At a press conference, Lombardelli said central banks faced a “delicate balance”.

“Obviously they shouldn’t tighten too much to the point that it would have a greater impact on growth than it is necessary,” said the OECD’s new chief economist, who took her post last month.

The OECD warned that higher interest rates around the world are “increasingly being felt,” notably in property and financial markets.

“Signs of stress have started to appear in some financial market segments as investors reassess risks, and credit conditions are tightening,” the report said.

The banking sector was rocked in March by the collapse of US regional lender SVB, whose demise was partly blamed on high rates bringing down the value of its bond portfolio.

The crisis reverberated across the Atlantic, with the Swiss government forcing Swiss banking giant UBS to take over troubled rival Credit Suisse.

“Should further financial market stress arise, central banks should deploy financial policy instruments to enhance liquidity and minimise contagion risks,” Lombardelli wrote.

Debt danger

The OECD also warned that almost all countries have budget deficits and higher debt levels than before the pandemic as they propped up their economies to withstand the shocks of COVID restrictions and Russia’s war in Ukraine.

“As the recovery takes hold, fiscal support should be scaled back and better targeted,” Lombardelli said.

As energy prices, which soared following the Russian invasion of Ukraine, fall further, government should withdraw schemes aimed at supporting consumers, the OECD said.

The OECD raised its 2023 growth forecasts for the United States, the world’s biggest economy, to 1.6 percent and China, the second biggest, to 5.4 percent — both an increase of 0.1 percentage points.

The eurozone also got a slight 0.1-point bump to 0.9 percent.

Britain was upgraded out of recession territory, with growth now forecast at 0.3 percent instead of a contraction.

The OECD, however, sharply lowered the outlook for Germany, with zero growth now expected for Europe’s economy while Japan’s GDP will grow 1.3 percent, a slight downgrade.
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The World Bank on Tuesday raised its 2023 global growth forecast as the U.S. and other major economies have proven more resilient than predicted but said higher interest rates would cause a larger-than-expected drag next year.

Real global GDP is set to climb 2.1% this year, the World Bank said in its latest Global Economic Prospects report. That’s up from a 1.7% forecast issued in January but well below the 2022 growth rate of 3.1%.

The development lender cut its 2024 global growth forecast to 2.4% from 2.7% in January, citing the continuing effects of tighter monetary policy, particularly in reducing business and residential investment.

“Growth over the rest of 2023 is set to slow substantially as it is weighed down by the lagged and ongoing effects of monetary tightening, and more restrictive credit conditions,” it said.

“These factors are envisaged to continue to affect activity heading into next year, leaving global growth below previous projections.”

The bank predicted global growth rebounding to 3.0% in 2025.  

In January, the World Bank had warned that global GDP was slowing to the brink of recession, but since then, strength in the labor market and consumption in the U.S. had exceeded expectations as has China’s recovery from COVID-19 lockdowns.

U.S. growth for 2023 is now forecast at 1.1%, more than double the 0.5% forecast in January, while China’s growth is expected to climb to 5.6%, compared to a 4.3% forecast in January after COVID-reduced growth of 3% in 2022.

The bank, however, halved its previous 2024 U.S. growth forecast for the U.S. to 0.8%, and cut China’s forecast by 0.4 percentage point to 4.6%.

The euro zone got a forecast increase to 0.4% growth for 2023 from a flat outlook in January, but the forecast for next year was also cut slightly.

Recent banking sector stress is also contributing to tighter financial conditions that will continue into 2024, the lender said.

It cited one potential downside scenario where banking stress results in a severe credit crunch and broader financial market stress in advanced economies. This would likely cut 2024 growth by nearly half to just 1.3% – the slowest pace in 30 years outside of the 2009 and 2020 recessions.

“In another scenario where financial stress propagates globally to a far greater degree, the world economy would fall into recession in 2024,” the bank added.

The bank said inflation is expected to gradually edge down as growth decelerates and labor demand in many economies softens and commodity prices remain stable. But it added that core inflation is expected to remain above central bank targets in many countries throughout 2024.
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The U.S. Department of Homeland Security is looking at how artificial intelligence can be used to help identify goods made with child or forced labor and prevent those goods from entering the country. VOA’s Julie Taboh has more. VOA footage by Adam Greenbaum.
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