EDITORIAL: Dr Hafiz Pasha while speaking in an Aaj Television programme expressed serious reservations over achieving the 3.5 percent budgeted growth rate for the current year or the growth “to remain in the upper half of the projected range of 2.5–3.5 percent” as forecast by the Monetary Policy Committee (MPC) in its 16 December meeting.
Pasha’s rationale: due to “high energy prices including gas and electricity, input cost increase coupled with restrictions on raw material imports, large-scale manufacturing sector could not register growth that negatively affected the overall Gross Domestic Product growth”.
The veracity of this claim is not in dispute, given the release of up-to-date government data (LSM registered negative 1.92 percent growth in September 2024) as well as the rise in private sector credit to one trillion rupees to minimise the incidence of tax on the banks, a major portion of which has been offered to the Development Financial Institutions (DFIs) and routed to the stock market by them.
This indeed is a major reason behind a buoyant stock market – a routing unlikely to fuel growth and, by extension, to dampen the raise in taxes that were projected due to a rise in growth.
In addition; even though the International Monetary Fund (IMF) has agreed to allow the government to reduce electricity rates for three months (the government had requested five) with the objective of raising demand from the national grid that has declined by around 20 percent due to very high tariffs and the rise in the use of solar panels by middle to high income earners - factors that account for a rise in capacity payments, payable in scarce dollars, that the country is contractually obligated to meet - it is unclear whether the reduction in rates will fuel demand.
Advertisements on the electronic media indicate that there is concern at the government level that demand has perhaps not risen by as much as projected. Be that as it may, the energy costs in Pakistan are far higher than amongst our regional competitors which, of course continue to constrain our exports.
And finally, Dr Pasha claimed that measures to discourage imports are in vogue, a policy that is designed to reduce the dollar outflows of our scarce foreign exchange reserves and achieve a current account surplus.
Cabinet members, including the Prime Minister and the Finance Minister, are, understandably, inclined towards a more optimistic projection; and the Monetary Policy Statement dated 16 December announced lowering the policy rate by 200 basis points to 13 percent claimed that key LSM sectors - textiles, food, automobiles, POL and tobacco - were already depicting strong growth till July-September 2024, a claim that belies the data uploaded on the Finance Division website.
Chairman Federal Board of Revenue (FBR), given the extremely challenging task of raising revenue by an unrealistic 40 percent as stipulated in the budget, in an interaction with media claimed that there was under-filing of 1.2 trillion rupees by the top one percent of the income earners in this country and proceeded to list an entire range of punitive measures against those who continue to under-file. Apart from those one percent and their accountants no one doubts the veracity of his claim; however, that does not take away from the momentous task of enforcing them to pay their due taxes.
The Chairman expressed optimism in the success of the ongoing drive while categorically stating that there will be no mini-budget this year. One may have reservations over his claim that the ongoing drive will be a success and yet one would agree with him fully that there will be no mini-budget for the simple reason that the agreement signed with the IMF has an in-built mini-budget titled ‘contingency measures’ in the event that there is a revenue shortfall.
Tax targets must not be seen in isolation, though that does not apply to the man who heads the tax collection board, but must be seen in totality – within the context of expenditure and sources of funding.
The budget for 2024-25 envisages a 21 percent increase in current expenditure, with not a single item whose budgeted outlay reflects improved governance (pensions) or sacrifice by those who benefit at the taxpayers’ expense (government salaries).
We have been urging the government to compel voluntary sacrifices from all the recipients of current expenditure, barring the outlay on Benazir Income Support Programme (BISP), for a period of two years, which would not only reduce the need to achieve a 40 percent raise in tax collections but also reduce the reliance on foreign borrowing that has reached 130 billion dollars whose interest payments and repayment against principal as and when due are requiring us to incur ever more loans.
Copyright Business Recorder, 2024