Home grown solution

Keeping in view of the tough conditions of the International Monetary Fund programme, the government has decided to present a home grown five year plan of economic stabilisation in the National assembly in the third week of this month. The plan will mirror the economic priorities of the ruling party. If it does materalise it will be vindication of stance taken by the eminent economist Dr. Ashfaq Ahmad Khan, opposing the front loaded lo programme of the IMF.

The plan also reflects slight departure in the approach of the Finance Ministry that had next three fiscal years plan while keeping in mind the IMF bail out package for these years which was also shared with the global lender. The original three year plan was steep and challenging to be implemented during the first two years of the PTI government. Yet the IMF was not satisfied with harsh and unpopular measures to be taken and wanted that Pakistan should take the majority of measures in the remaining period of the current fiscal year and in the next fiscal year.

Now the finance ministry has been instructed by the Prime Minister Imran Khan to prepare a five year plan adopting incremental approach for increasing tax revenues while simultaneously supporting economic growth. The talks between then Pakistan and the IMF are already moving at snail pace and no immediate breakthrough is expected. However, both sides have still maintained contacts. If finance ministry shifts from the steep path to incremental approach the chances of an early IMF programme will be very low. The Finance Minister Asad Umar told to a group of selected TV anchors on Thursday that Pakistan can survive without IMF programme. He ruled out the possibility that the country may default on repayment of debt and claimed that due to some important decisions being taken by the government Pakistan is better placed to negotiate with the IMF. He said, “The government will sign an agreement with it in case of any attractive programme.” He claimed that with an increase in exports and reduction in imports the trade deficit had come down from $ 2 billion per month to $ 1 billion. He said that pressure to rush for a deal with the IMF has eased due to combination of efforts—financial support from friendly countries and economic measures taken by the government.

The plan along with the mini-budget could be tabled in the National Assembly in the near future. It has been shared with independent economists. The government has been compelled to introduce mini-budget due to Rs.173 billion shortfall in tax collection during the first half of the fiscal year due to the inefficiency of Inland Revenue services department of FBR. The government plans to set an ambitious target ofRs.8.2 billion tax collection in the last year of its tenure as it faces difficulty to meet growing debt servicing that are projected to eat up 45 percent of tax revenue. The tax-to-GDP ratio will be enhanced from the current 11 percent to 14 percent. The current account deficit will also be brought down to $ 9 billion in the next fiscal year on the back of $31 billion exports and $58 billion imports. Overseas workers remittances are projected to cross 23 billon dollars next year.

Moody’s credit rating agency anticipates that Pakistan would continue to fight against larger economic challenges such as repayment of mounting debt and rapidly declining foreign currency reserves fury FY 19. It had to repay foreign debt amounting to over 160 percent of its foreign currency reserves. Also on Thursday, the State Bank of Pakistan reported that on January 4, the country’s foreign currency reserves dropped to 57 months low of $ 7.04 billion.

During the successive elected governments, the main thrust for revenue generation has been on indirect taxes which are inelastic in nature. The potential sources of direct taxes like agriculture income tax, brokers’ tax and professional tax on layers, specialist doctors and financial experts were avoided. The big land owners who also run industrial and business enterprises show bulk of their income from businesses as agriculture income and succeed in massive tax evasion. The campaign to net the tax dodgers has so far not produced the desired results.

An export potential of $ 12 billion exists which can be tapped by exploring new markets for primary commodities and value added items. It remains to be seen how the targets set for increasing tax-to-GDP ratio to 14 percent and boosting exports can be achieved.