Former Advisor to Prime Minister on Finance Dr Hafeez Pasha stated that the focus of the budget 2015-16 is not on growth; it is rather on reducing the fiscal deficit. Hafeez Pasha in Aaj TV programme "Paisa Bolta Hai" with Anjum Ibrahim stated that additional taxation proposals are targeted to generate around 260 billion and the government would not have gone for such massive taxation if its objective was to revive growth. The government would have increased taxation after achieving growth, he added.
The government was unable to achieve tax target for 2014-15 because of weak growth and country's industrial sector's growth was hardly one per cent during last four to five years but the government was collecting 70 per cent taxes from the industry. An increase in advance and withholding tax rates can be productive to some extend to bring non filers into tax net but if this gap is increased significantly it can be counterproductive. Withholding tax has increased to 65 per cent of the total revenue and suggested that the government has to rethink about income tax, he added. Dr Pasha further added that government required to pursue an expansionary fiscal policy for revival of growth and there is danger of mini budgets due to a shortfall in revenue and quarterly review of the International Monetary Fund (IMF).
Foreign exchange reserves have improved, he acknowledged, but largely because of foreign borrowing. Dr Pasha challenged the growth rate of 4.2 per cent for the current fiscal year, saying that it is unlikely to be above 3.8 per cent. He added that growth rate as per the Economic Survey is 4.2 per cent but the problem is that manufacturing sector's growth was only 2.5 per cent and growth in major crops was estimated at 2.3 per cent. If these two leading sectors, with several linkages with the economy, are not performing well and when industrial growth is less than 4 per cent the economy can not grow by 4 per cent.
Pasha in response to a query stated that "last year's growth rate which was given as 4.1 per cent, has now been revised downward to 4 per cent in the final estimates and hopefully the current fiscal year estimates of growth would also be corrected". He added that as per appropriate estimates, growth rate for the current fiscal year would be around 3.6 per cent, which is the same rate during the tenure of Pakistan People's Party (PPP). He said that only once in the PPP's tenure growth rate was recorded at over 4 per cent, however the figure was revised downward two years later by the present government after coming into power.
Dr Pasha said that certainly some success has been achieved in a couple of areas. Inflation has declined which is a very positive development but it has more to do with decline in oil and commodity prices in the international market. He said balance of payment position has also improved due to a decline in oil prices in the international market.
Remittances have improved markedly but considering that there has been a 16 percent rise in the current year and the bulk is from the IAE (with remittance growth much lower in other neighbouring countries) leads one to conclude that black money has been whitened and repatriated into the economy.
Pasha added that as per Economic Survey, electricity generation has declined by one and half per cent in the first nine months of the current fiscal year - a top priority of the government - which is very unfortunate and a lack of liquidity is major contribution because escalation of circular debt has choked the sector.
To a query as to whether the circular debt has to be reflected in the budget - dismissed by Ishaq Dar in the post budget press conference - Pasha pointed out that the government in 2012-13 cleared the circular debt of Rs 480 through the budget. He added that the PPP government had also settled Rs 391 billion in 2011-12 through the budget, "so this is a budgetary issue" he concluded. He further stated that the government has cut power subsidy by 50 per cent for the next fiscal year, which means that power tariff would have to be increased and consequently the burden would be transferred to the common man.
Dr Pasha said that usual political thinking of the PML-N government is that a strong exchange rate is a reflection of a strong economy; however this view is not based on sound economics. A strong rupee is negatively impacting on our exports, he added. He said that the exchange rate now must be used as an instrument for trade policy as it was being done by other neighboring countries. He stated that even a country like Brazil has depreciated its exchange rate by 40 per cent and Pakistan has to decrease exchange rate otherwise it would be priced out the of EU market. He added that these was increased government's reliance on external borrowing.
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