The Senate''s Standing Committee on Finance on Saturday suggested the new government to seriously implement reforms in the Federal Board of Revenue (FBR) to bridge the budgetary revenue gap of nearly Rs 300 billion, bring in a professional, instead of a bureaucrat, as the FBR chairman and overhaul the tax machinery.
On Saturday, Chairperson of the committee Nasreen Jalil is learnt to have written a letter to the new Finance Minister Ishaq Dar, outlining stark economic realities, priorities and focus areas, besides forwarding recommendations for the new government.
The committee suggested the new government to reduce the number of ministries to 25 from 40, initiate reforms in state-owned entities and FBR along with implementing an austerity drive to steer the country out of the current economic situation. The letter said: "The previous government increased fuel prices by phasing out fuel subsidy, especially on diesel, resulting in enhanced cost of doing business and high inflation." The letter said: "Unlike popular notions of balance of payment / reserve erosion crisis, the biggest issue at hand is that of fiscal deficit."
"...currently, (fiscal deficit is) running at over 7.5 percent or Rs 1.7 trillion, but it can very well be tackled through Public Sector Entities (PSEs) and FBR reforms apart from reduction in interest rates," the letter suggested. Criticising the previous government for increasing fuel prices, she said: "Had that not been done, the escalation in international fuel prices would have put further pressure on foreign exchange reserves, but now higher fuel prices have been absorbed by the system in cost of doing business."
Nasreen Jalil said: "Yet, the circular debt issue remains, mainly due to inefficiencies and choke up in receipts from end consumers including Government entities and also electricity theft and system leakages/ inefficiencies." The letter said: "As the chairperson of Finance Committee, I strongly feel about the fiscal measures and policies that require attention and so I must share my views with you." However, she said: "I know that you are thinking on the same lines and are more than competent to take the country out of economic quagmire."
According to the letter, the country was currently facing multiple problems, including "bad governance, corruption, negative perception in the world, excessive government borrowing and the debt trap, but...there is silver lining on the economic front on which the new government''s finance and economic team can capitalise." The suggestions contained in the letter included reduction in interest rates by 150-200 basis points, "which will bring the overall fiscal deficit down by Rs 200-250 billion". It suggested that a reduction in interest rates would result in decreased cost of doing business, boosting much-needed investment and economic activity, besides reducing inflation.
The chairperson of the Senate''s finance committee said that the new government needed to "bring the deficit down by Rs 600-700 billion". Stressing the need for capitalising on all-time high Karachi Stock Exchange 100-Index, which was currently hovering around 20,000 mark, in anticipation of better financial and economic environment.
Austerity - The letter said that there was no escape from austerity-drive and cost-cutting measures, which "are essential to give a positive message to the world" that the new government meant business. Balance of Payment: On this front also, the situation "is not that scary, as it has been presented".
"The projected balance of payment deficit in 2014, in worst-case scenario, is $800-1,000 million, which can be well taken care of from available structured commercial borrowings alone". "There is enough appetite for such funding in the international market with the advent of the new government. The letter urged the new government to materialise the process of auctioning 3G licenses, which is expected to attract at least $1.2 billion in investment.
"Right management is needed to get the much-awaited $800 million from Etisalat Telecom," the letter said, adding that these potential successes "will surely help in attracting foreign investment and revival of privatisation process in Pakistan";
Structural Changes and Restructuring The letter said: "Improvement in government structure is the need of the hour for effective and efficient management of institution and deliverable democracy, we are recommending various Ministries/ Divisions to be merged/ restructured/ upgraded/ created and to reduce the total number of Ministries from 40 to less than 25."
Among other things Nasreen Jalil recommended the new government to make the Statistics Division a more independent and robust entity complete with full-time Secretary and Minister for State. "This Division alone can do wonders, if run properly (as) timely and accurate availability of data is the key to making most effective, accurate and informed decisions." On the other hand, the Planning Commission "may need to be dissolved, as there is very limited relevance of this Division with the changed realities and uncertainties, locally and globally. "Perhaps, five-year plans are no longer relevant; instead short-term plans are more pertinent, workable and measurable."
FBR: "There are serious reforms required with the current budgetary revenue gap / deficit of around Rs 300 billion. The Nawaz Sharif government earlier also embarked upon the reform in FBR by brining-in a professional, rather than a bureaucrat, as the Chairman. A similar initiative is required this time around also. A major Human Resource shake-up is absolutely necessary."
SECP: "Major reforms, shake-up is warranted here as well. This institution needs direction and a young aggressive Chairman to make bold decisions. There is a severe need of quality human resource and training and development in this institution as well. There is already an ongoing debate on the future role/ scope of this institution, which need to be concluded quickly so that work on implementation on the recommendation of debate must commence without delay."
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