ISLAMABAD: Economists at a webinar have suggested to the government to bring down discount rate to five percent by the end of June 2021 to deal with the debt crisis.
Speaking at a pre-budget webinar organised by the Pakistan Institute of Development Economic (PIDE) here on Tuesday, they said Pakistan was facing serious issues related to capacity building, government’s inability to make policy, high discount rate left no room for doubling safety nets and there should be a moratorium in place to check PSDP.
They further said there is room for the government to reduce interest rate to five percent by end June as per current global phenomenon to deal with the increasing debt. It will bring down interest payments significantly, reduce budgetary allocation for interest payments, they added.
Speaking on the occasion, Dr Ashfaque Hassan said under International Monetary Fund (IMF) programme budget making is a difficult task as it significantly reduces the capacity of the government to make a budget as it focused on tight monetary policy.
He added that it increased the cost of interests payments, interests payments have jumped by up 75 percent during two years of PTI rule from 1,500 billion and crossed to Rs2,600 billion.
During this period, revenue not increased by 75 percent as a result, it increased budget deficit which led to more borrowing, public debt has reached to 91 percent in 2019-20 from 74 percent in 2017-18.
The huge amount on account of interest payments leaves no significant financial resources to the government to spend on safety nets.
He said the new finance minister has on the record the PTI government has ‘ruined the economy.’
The economic managers have added $640 billion cost to the economy and Rs 6,350 billion public debt added to the economy because of devolution and hiking interest rates, which has also been highlighted by the new finance minister Shaukat Tarin.
He said that lowest GDP growth rate will create serious problems for the country as it did not create job opportunities for the youth.
There is a serious state of uncertainty of the upcoming budget as the Ministry of Finance has not consulted with the IMF before making budget strategy paper.
If the government failed to have a deal with IMF, the next year’s budget deficit target will be six percent and tax collection targets will be around Rs 5,900 billion, which will not bring stability in the economy.
Present IMF program has set no budget deficit target as it has excluded interest payments the largest expenditure which brings budget deficit to 8.5 percent. Stabilisation first growth later policy has never worked in Pakistan and will not work; therefore, the government must change this policy.
Under such a situation, the government has only two options either to cut down defense budget or cut down development budget.
He said tax collection at the end of current fiscal year will remain Rs4,500 billion and the government at a forecasted GDP growth rate of four percent and inflation 9.5 percent the tax collection will be maximum Rs 5,100 - 5,200 billion.
This year budget is 8.2 percent and the next year’s target should be set at seven percent as fixing at six percent will bring serious problems for the economy.
He maintained that under National Finance Commission (NFC) award fixing higher tax collection targets has also serious problems as it has to allocate provincial shares.
The NFC award has played a leading role in creating serious indiscipline in fiscal stability.
As per a study of the State Bank of Pakistan (SBP) one percent increase in discount rate results in taking up Consumer Price Index by 1.2 percent. Tightening of monetary policy is not required as it has no impacts on hoarders, for instance, increase in sugar price was not a result of tight monetary policy.
He said that Pakistan was the only nuclear power of the world going into IMF programmes regularly and this is the 23rd IMF program and this should be the final one.
Former governor of State Bank of Pakistan (SBP) Shahid Hafiz Kardar speaking on the occasion talked about increasing circular debt, tax evasions, direct and indirect taxation, and low savings and investment.
He said the core fiscal as well as monetary policies designed as per IMF programme are totally focused on revenue deficits but not on reforms. Turnover tax at 1.5 percent is killing the economy and it should not be more than 0.5 percent. Pakistan has imposed 65 different withholding taxes of which 10 are contributing more than 85 percent which has raised the cost of doing business as a result it creates serious problems in GDP growth. He said that such a huge number of withholding taxes are not helping growth taxation but biggest component of tax revenue goes to paying concessions to IPPs, exemption food and agriculture should also be removed.
Retailers’ registration must be made mandatory and FBR must install cameras on the retail shops to monitor their sale and purchase, these actions will help increase tax collections. Petroleum Levy should be revised as well as custom duties. Tax exemption limit from Rs 60,000 must be increased.
Over 45 percent FBR revenue collections are coming from withholding taxes, custom duties and import duties, the government needs to revise this trend as being a developing country Pakistan is importing hugely to under taken various developmental projects and heavy taxation increases the cost of these projects.
Copyright Business Recorder, 2021
Comments
Comments are closed.