LAHORE: As the International Monetary Fund has been pushing the government to increase the general sales tax rate to a minimum of 18 percent, the Federation of Pakistan Chambers of Commerce & Industry’s Businessmen Panel (BMP) has announced to resist such destructive and harsh move, as the country’s debt servicing cost might escalate to alarmingly Rs5.2 trillion, with inflation accelerating to 29% and economic growth rate slowing down to 1.5 percent in the current fiscal year.
FPCCI former president and BMP Chairman Mian Anjum Nisar stated that the IMF’s demand to consider increasing the GST rate by 1% to 18% in the current fiscal year would prove to be highly inflationary and 1% increase would push the prices of all goods upwards. The higher inflation and lower economic growth would cause higher unemployment and poverty in the country, he added.
He expressed his dissatisfaction about the government’s ability to raise $8 billion from capital markets and foreign commercial banks in these challenging times. He said that the government has already spent Rs2.56 trillion on debt servicing during July-December period of the current fiscal year. The central bank last month increased the interest rates to 17%, which might not help contain inflation but will surely further bleed the budget.
He raised questions about the inflationary impact of the planned increase in electricity prices to lower the circular debt. The government’s estimates were that due to further increase in the electricity prices, inflation could jump to 29%.
The Pakistan Bureau of Statistics reported that inflation hit the 48 years’ highest level of 27.6% in January. The likely acceleration in the index would bring more misery for the trade and industry which was facing difficulties in meeting soaring cost. He asked the government to inform the IMF that due to floods, tight monetary policy, high inflation, and a less conducive global environment, the economic growth rate might slow down in the range of 1.5% to 2% - a pace that was even lower than the population growth rate and would cause more unemployment in Pakistan.
He said that the agriculture sector would contract, the industrial sector might show nominal growth but the services sector was likely to grow around 3%. Compared to old estimates of generating about 1.5 million new jobs, the government had now realized that the additional jobs in the current fiscal year might not be more than half a million.
According to some estimates, about two million new entrants came in the market in search of jobs every year and a low additional employment number suggested that there would be a higher jobless rate in Pakistan.
The government claimed that it had made arrangements for the $30 billion gross external loans for this fiscal year, as the country’s economic viability was at stake, as its gross official foreign exchange reserves plunged to $3.1 billion.
The government still believed it would raise $1.5 billion by floating Eurobonds and had made it part of the external financing plan. As against the budgeted over $7 billion foreign commercial loans, the Ministry of Finance still saw $6.3 billion materializing in the current fiscal year. The IMF was of the view that in present circumstances, it would be difficult to raise $8 billion from the capital markets and foreign commercial banks. There were also questions whether the government could arrange at least $4 billion for making upcoming debt repayments, excluding rollovers. It hoped to receive a total $11 billion from the multilateral creditors during the current fiscal year but its materialization depended upon the revival of the IMF program. So far, the Asian Development Bank had been helping Pakistan in a major way, but the World Bank was looking towards the IMF.
There is also issue about the low FBR’s tax-to-GDP ratio, which was now estimated at around 8.4% at the inflated size of the economy. On the projected old size of Rs78 trillion, the ratio was 9.6% of the GDP, which the IMF did not endorse.
Presently, the total cost of the debt servicing could peak to a whopping Rs5.3 trillion in the current fiscal year 2022-23 while the government had budgeted Rs3.94 trillion but the revised projections were Rs1.3 trillion higher than the budget estimates.
The Rs5.2 trillion would be equal to 54% of the budget announced in June last year and massive spending projections could lead to a demand by the IMF for more taxes or cut in other expenses to create some fiscal space.
Copyright Business Recorder, 2023
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