LAHORE: Former Federal Finance Minister and renowned economist Dr Hafiz A Pasha has said that promotion of exports, increase in tax-to-GDP ratio, revenue collection from the untaxed and a crash program for the diversity of loss-making state owned enterprises is a must to get rid of the severe economic challenges being faced by the country.
He was speaking at the Lahore Chamber of Commerce & Industry. LCCI President Mian Nauman Kabir presented the address of welcome, while Senior Vice President Mian Rehman Aziz Chan and Vice President Haris Ateeq also spoke on the occasion.
Dr Hafiz A Pasha said that the last year, the biggest burden of Rs1800 billion in the history on the national exchequer was collectively caused by the state owned enterprises. “Power sector is a black-hole that is destroying the economy,” he said and added that the annual loss of National High-way Authority is Rs173 billion.
He said that there is a dire need to enhance the tax-to-GDP ratio which is currently lowest in the world. He mentioned that 22 percent of the agri land is in the hands of only one percent landowners. He said that last year the income of top-20 percent agri land owners was Rs2800 billion but they paid only Rs2 billions tax. He said that the 80 percent of the tax is being collected from the industry while the tax collection from services sector is very low.
Dr Hafeez Pasha said that Pakistan is a resource-rich country whose economic condition is deteriorating. He expressed fear that before receiving money from the IMF, the foreign exchange reserves will have gone below 7 billion dollars, although the safe level is 18 to 19 billion dollars. He said that public debt in July was around fifty trillion rupees while the ratio of external debt to GDP has reached 41 percent. Five years ago, these loans were 83 billion dollars, which today have become 130 billion dollars. It is a matter of concern that we do not have foreign exchange reserves at the beginning of the financial year.
Speaking on the occasion, LCCI President Mian Nauman Kabir said that massive Devaluation of around 18 percent has taken place in last four months as the dollar rate has surpassed Rs214 in the inter-bank market after touching a peak of Rs239. He said that this devaluation has resulted in massive hike in cost of production for our industry, manufacturing and agriculture sectors since we are heavily reliant on imports of raw materials, components, machinery, oil, food items and fertilizers.
Furthermore, the rapid devaluation has resulted in import restrictions and massive exploitation by the commercial banks as they were demanding 10 to 15 rupees over and above the inter-bank dollar rate for releasing the import shipment documents, resulting in delays in clearance of shipments and massive demurrage & detention charges for the business community.
Mian Nauman Kabir said that the trade deficit stood in 2021-22 escalated to 48 billion dollars, which is 55 percent higher as compared to previous year. No economy in the world can sustain such an exorbitantly high trade deficit. He said that the steep rise in imports is the prime reason of escalating trade deficit. In 2021-22, imports stood at 80.18 billion dollars as compared to 56.38 billion dollars in previous financial year. “I believe that Pakistan’s economy is not only about textiles. We have to tap our immense export potential in the sectors like Halal food, information technology and pharmaceuticals,” he added.
The LCCI Senior Vice President Mian Rehman Aziz Chan said that the successive governments in the past have failed to expand the tax base which is still around 3 million taxpayers, resulting in one of the lowest Tax to GDP ratios in the world. As a result, the existing taxpayers are always squeezed badly in the government’s efforts meet the tax revenue targets.
LCCI Vice President Haris Ateeq was of the view that Pakistan’s economy is facing multi-dimensional challenges and in this scenario, there is a need for a coherent policy stance and narrative for tackling these issues.
He said that through joint efforts for ensuring effective policy advocacy, we can play our due role in transforming our economy into the most competitive economy in the region that is growing at above 7 percent and also creating tremendous economic opportunities for its masses. The LCCI President Mian Nauman Kabir said that the high inflation rate, which stood at 24.9 percent in July 2022 as compared to 21.3 percent in June 2022 has adversely impacted the businesses in the country. Due to the ongoing war between Russia and Ukraine, the global oil and commodity prices have remained volatile.
He said that the policy rate of 15 percent is considerably higher than other economies in the region (e.g. India 5.4pc, Bangladesh 4.75pc, China 3.7pc). This essentially means that access to finance which is imperative for the growth of industry is much more expensive in Pakistan as compared to other economies in the region. It will surely hinder the process of industrialization and private sector growth. He was of the view that the Monetary Policy should support industrialization.
The successive governments have been increasing the policy rates to control inflation. Instead of curbing inflation, this resulted in rapid de-industrialization. Mian Nauman Kabir said that the access to finance is a persistent challenge for our private sector. The SMEs in Pakistan get less than 6 percent of the private sector credit while the number of SME borrowers is only around 169 thousand. We would like to have your perspective on how the commercial banks in the country can be obligated to create more financial space for the SMEs.
He added that losses of the State Owned Enterprises are a big stumbling block in the economic development of Pakistan. The outstanding domestic debt of public sector enterprises according to the State Bank data stood at around 1.4 trillion rupees in June 2022. The losses of State Owned Enterprises result in misallocation of taxpayers money and reduce the fiscal space for social sector development.
Haris Ateeq said that if the private sector is to act as engine of Pakistan’s economic growth, the Government has to provide an enabling environment to business community to move forward.
Copyright Business Recorder, 2022