Addressing the investment conference in Islamabad Foreign Minister Shah Mehmood Querishi expressed the optimism that pursuit of economic diplomacy will contribute to socio-economic development. Referring to the memoranda of understanding and agreements signed with certain Islamic countries, he claimed that flow of foreign direct investment will go up appreciably. The ground reality of negative economic environment, created by sky-high tariffs of electricity and gas plus galloping inflation and technological stagnation, blurs the prospects of increase in foreign direct investment. It is also premature to predict that the terms of Free Trade Agreement phase –II with China will help substantially reduce the massive imbalance of $12 billion in bilateral trade which amounts to larger component of Pakistan’s current account deficit.
In his address to this conference Advisor on finance Hafeez Sheikh promised the lollypop of fiscal and monetary measures which will pave the way for achieving sustained economic growth. He has worked as Finance Minister in the previous PPP government but could do the wonder he is promising now to the entrepreneurs although at that time the macroeconomic imbalances of unsustainable public debt and current account deficit were not so threatening to the economy. He cannot even retrieve the outstanding amount of $ 800 million from UAE Telecom Company Etesalat on account of privitisation proceeds of Pakistan Telecommunication Limited. This was a shady deal of former Prime Minister Shaukat Aziz. The advisor on finance has rejected the tax amnesty design of the former Finance Minister Asad Omer which would have generated more revenue from the declaration of “Benami Assets” by virtue of high tax rates.
The independent economists do not subscribe to rosy future prospects of economy. The economic growth rate will remain stagnant at 3 to 4 percent. The incumbent Planning Minister is of the view that for jobs creation the economy must grow at 7 percent with in the next five years, a goal not achievable at least in the next two fiscal years. The volatile political situation in Venezuela, the US imposed economic sanctions on Iran and decreased supply from OPEC countries have pushed up the prices of crude oil from $60 to $73 per barrel in the international market. The cabinet has deferred the price hike of petroleum products for the time being and now the Economic Coordination Committee of the cabinet will take a decision in this matter. However, eventually the POL prices have to be jacked up. The multiplier effect of increase in energy price will accelerate the inflationary trend and it may end up in double digit. The galloping inflation, further depreciation of rupee and higher indirect tax burden will further slow down the GDP growth rate. Consequently, 8 million more people will go down the poverty line in the next two fiscal years whereas one million have already lost their jobs and four million have gone below the poverty line.
Debt servicing will devour 2.6 trillion including $40 billion foreign loans, 50 percent of which are high interest bearing short term Chinese loans. Debt servicing and rising current expenditure of government ministries, divisions attached departments, autonomous bodies and hemorrhaging public sector corporations will certainly lead to squeeze on development expenditure.
As per the IMF condition of revenue generation up to Rs. 700 billion through indirect taxes in the next fiscal year budget will certainly choke the economy. The focus must be on revenue generation through direct taxes. There should be no more delay to start collecting income tax on agriculture, increase in the rate of property tax on immovable property. Will the PTI leadership show the spine to go for taxation on these sources in the presence of strong feudal lobby in the party’s rank and file?
