The Pakistan Democratic Movement (PDM) government is stumbling badly on managing the economy. Their first month in office has been plagued by excessive load-shedding, hike in power tariffs and diesel shortages across the country. Instead of dealing with these governance challenges, the finance minister Miftah Ismail is busy creating panic in the markets through his statements on raising fuel prices to Rs 200 per liter and on taking the fiscal deficit to 10% of GDP.
The data released by the Ministry of Finance confirms that the consolidated fiscal deficit during the first nine months of the fiscal year was 4% of GDP, in line with the FY2022 Budget target of 6.4% of GDP. This is despite the Rs 300 billion relief package launched by the PTI government, where sales tax was cut to 0%, petroleum levy was slashed to Rs 0 and prices of petrol and diesel were frozen to shield domestic consumers from global commodity price increase. Despite the difficult global environment with record high commodity prices, we managed to provide relief to the masses through higher tax collection and reduction in the government expenditure.
Federal Board of Revenue (FBR) tax collection increased by 30% in the first nine months of the current fiscal year, rising to Rs 4.8 trillion — the highest collection ever recorded in Pakistan’s history. This was achieved despite the government reducing GST on petrol to 0%. GST on petrol has been the single biggest source of FBR collection in the past, accounting for 35% of total GST collection in 2021.
The success of tax measures including bringing big retail stores into the POS system, track-and-trace system, single-window operation for customs has helped us broaden the tax base and increase tax revenues without burdening the existing tax payers. The number of tax filers has almost doubled to 3 million in 2021 from 1.6 million in 2018 and through the above tax broadening measures, we intended to add 43 million taxpayers over next 3 years. Record tax refunds have been issued by FBR under the PTI regime and customs duty on over 3,000 HS code items had been reduced.
On current trajectory, the FBR collection for the full year will cross Rs 6 trillion mark, a new record. Under PML-N the tax collection was Rs 3.8 trillion in 2018. Hence, it is disappointing to see the Pakistan Democratic Movement (PDM) government remove the FBR chairman despite his outstanding performance. This will cause a disruption to FBR efforts to sustain tax collection in the months ahead. We have also managed to contain the fiscal deficit within the budget limits despite foregoing over Rs 300 billion in collection under the Petroleum Levy, again to safeguard the domestic consumers and provide relief during these extraordinary times.
Finance Minister Miftah Ismail has gone on record to create panic in the markets, talking about the fiscal deficit shooting up to 10% of GDP in just 3 months. That entails running a deficit of Rs 3 trillion during April to June, which is more than the deficit posted in the last nine months under PTI government of Rs 2.5 trillion. While trying to portray the PTI government in a bad light, the financial wizards are shooting themselves in the foot by making such ludicrous claims and taking the economy down with them. The results of today’s T-bill auction are shocking. The borrowing cost for the government has increased to 15% on the 6-month T-bills, the highest levels since 1998. When we left the government, the rate for the same tenor paper was 12.5%.
The panic created by the PDM financial wizards threatens the economic outlook. Why would banks lend to the private sector when they can lend to the government at 15% risk-free? Private sector lending had increased to Rs 1.2 trillion under the PTI government as of end March 2022, the highest ever recorded and a growth of 170% from last year. Manufacturing sector (LSM) had posted growth of 7.8% in the current year. Profitability of the top 100 companies listed on PSX posted the growth of 62% in 2021, the highest growth in the last 10 years. The economy was on track to post growth of 5% in the current year, on top of the 5.6% growth in 2021. We were creating 1.84 million jobs every year, the highest job creation for any government on record.
Unfortunately, the PDM coalition is hell bent on wrecking the economy by creating hurdles to growth of the private sector through an astronomical increase in interest rates and through a self-manufactured power crisis.
(The writer is a former finance minister. The views expressed in this article are not necessarily those of the newspaper)
Copyright Business Recorder, 2022