The World Bank has warned on Thursday that Pakistan’s macroeconomic conditions have significantly worsened and having reliance on short term commercial loans can create a repayment issue. The Washington based lender comprehensively covered the socio-economic issues in Pakistan’s Development Update Report stressing Islamabad to have an able “tax administration” to broaden the extremely narrow tax base. The extremely worrying report has come at a time when Finance Minister Ishaq Dar, who has created all this economic mess, is away from the country on the pretext of treatment for heart problem in London.
The World Bank said that Pakistan’s reliance on short term foreign commercial loans has significantly increased and the government obtained 5.8 billion US dollars short term loans just in two years. “These bullet facilities can create repayment issue in future” the report warns the financial managers of Pakistan. Pakistan received a record disbursement amounting to $ 10.1 billion in the last fiscal year and 43 percent of total loans came from commercial Banks. The government, erroneously deem this instrument a diversification of its existing funding avenues but the World Bank sees these ” bullet facilities” as a source of vulnerability.
The macroeconomic imbalances have significantly worsened over the last 9to 12 months and widening macroeconomic imbalances could increase the country’s vulnerability to external and domestic shocks. The report cautions that Pakistan will miss all key macroeconomic indicators for the year, notably fiscal deficit, current account deficit and annual economic growth rate. Against the government’s target of limiting the budget deficit to Rs. 1.5 trillion or 4.1 percent of the GDP, it will be 6.1 percent of the GDP or Rs. 2.2 trillion for the current fiscal year. The official target of 6 percent annual GDP growth rate cannot be achieved. On the foreign trade side, the yawning gap in the current account deficit will exert tremendous pressure on the sliding foreign currency reserves. The World Bank has urged the government to take advantage of advanced IT infrastructure that uses the available data to reduce the chances of tax evasion. The Bank has also underscored the need to maintain a competitive Real Exchange Rate IREER) to support the exports and import-competing industries. It also emphasizes the efforts to improve revenue collection and coordination between federal and provincial governments to reduce public spending.
The World Band has issued a belated warning about the disastrous fiscal and monetary policies of the present government. These politics were initiated right from the day one of PML (N) government but the multilateral donor agencies did not hold its legs to fire to impose finical discipline rather they deliberately shut their eyes towards the non-implementation of their conditionality of tax reforms by levying direct taxes on the affluent people. The recipe of competitive Real Exchange Rate will not boost exports as the cost of production is very high and devaluation local currency will substantially enhance the comparative advantage of Pakistani goods in the global market. The GSP Plus facility did not increase our exports to the European Union. The high gas and electricity tariffs and multiple indirect taxes have crippled the imports competing industries. The usage of advanced IT data will not solve the problem of tax evasion as the tax evasion is done by exercising the clout of public offices and political influence. The tax officials cannot collect direct taxes from the political elite and influential businessmen. FBR has a data of 3.8 million wealthy people who do not pay taxes because nether the previous nor the present government showed interest in promoting the tax culture. Hence the present government will turn a deaf ear to the World Bank warning and it will turn out to be a far cry.