Improving fundamentals of economy
Asad Umar, the lawmaker tipped to be the new finance minister, has promised to separate economic matters from politics and vowed to give administrative independence to key government institutions in a bid to turn around their fortunes and pave the way for boosting the economy. He said that his party government would appoint reforms oriented chairperson of Federal Bureau of Revenue (FBR). H e also assured complete autonomy to Pakistan Bureau of Statistics (PBS)—the national data collecting agency that remained at the centre of controversy and allegations of manipulations of economic growth and data.
While criticizing the mismanagement of PML-N government Asad Umar Said, “The first real relief can be given to the people is that economy will be run on fundamental rather than political gains.
Transparency and austerity are the important fundamental of the economy. These are all pervading norms in developed countries. The hallmark of previous PML-n government was excessive discretionary spending, massive corruption in mega development projects and pilferage in funds doled out to law makers of the ruling party and allied parties, The World Bank and International Monetary Fund gave repeated warning against massive slippages in public expenditures. But their advice was sarcastically rejected. The reckless expenditure resulted in a fiscal deficit close to 7 percent of GDP.
The deliberate rocking of the boat of the economy reflected in an unsustainable growth of 74 percent in public debt. The debt burden rose to 24.5 trillion or 72 percent of the total size of the economy—the highest level of debt in 15 years due to the unscrupulous and corrupt economic management. If the rising trend of public debt is not contained, the debt level will further increase to 74 percent of the Gross Domestic Product (GDP). The Public debt of Rs. 24.5 million includes Rs. 16.5 trillion domestic debts and external debt of Rs. 8 trillion, which is equal to $ 94 billion. The World Bank in its Report “South Asia Focus Fall 2017”issued in August that year forewarned the PML-N government to immediately initiate corrective measures to address the macroeconomic imbalance of bulging trade and budget deficits and ballooning public debt. But the planning minister Ahsan Iqbal, who was also de facto finance minister, showed obduracy and rejected the sane advice of international lending agencies.
The new government would need to immediately follow the fiscal consolidation path by restricting expenditures and enforcing a radical plan for domestic revenue mobilization. Asad Umar has hinted in a current affairs programme of a private TV Channel that PTI government would slashed down the tax rate but expand the tax base by bringing potential tax payers who are so far out of the tax net. He said that reliance on regressive indirect taxes will be reduced. But it is pertinent to mention that in General Musharraf government the number of active tax payers was 2.4 million which dropped by 50 percent to 1.2 million in PML-N government. In 2017, 43 percent listed companies and registered partnership firms did not file tax return with the FBR. The tax amnesty on domestic and offshore assets did not yield the desired results. The active tax payers who have slipped out of the tax net have to be brought back and the available data of 3.8 million wealthy people with the FBR should be utilized for imposition of tax.
Another of grave concern is the snowballing power sector circular debt of Rs. 550 billion. It does not include the power sector debt of Rs. 641 billion which has been parked in Power Holding Limited (PHL).
The previous government paid a circular debt of Rs. 180 billion. Out this amount Rs. 80 billion were paid for the purchase of electricity and Rs. 100 billion for the idle capacity of thermal power plants owned by private power companies. The government had to pay Rs 22 billion as penalty for not making the payment of circular debt on time. A legal solution has to be sought to get out of the cobweb capacity clause of agreements made by Benazir Bhutto and Nawaz Sharif with private power producers for personal illegal monetary benefits at the expense of national interest.
Administrative authority to PBS is inevitable because this government department was used by former finance minister Ishaq Dar to make projection of rosy picture of the economy with fudged data, whereas the economy was in shamble. PBS was not granted administrative approval to change the base year from 2007-08 to 2015-16 for accurate estimation of the growth of the economy. It is worth mentioning that in the United States, President Jimmy Carter adopted the method of ‘Zero Base’ budgeting to avoid overstatement about the state of economy. Hopefully the new government will introduce economic reforms to turn around the economy and develop a Pakistani class of professionally competent legal experts to renegotiate and change the contracts with private power producers and the LNG agreement made with Qatar.