Whereas the present cash-strapped government is still relying heavily on bank borrowings to finance its budgetary needs, senior economists like Dr Ishrat Hussain expect the government’s debt servicing climbing to Rs 900 billion during the current fiscal year.
Proposing an equitable and audit-based tax system in the country, the former State Bank of Pakistan governor called for a reduction in its dependence on foreign and local budgetary borrowings through broadening the existing tax net and cost cutting. Dr Hussain said that, currently, the government was paying 16 percent interest on its budgetary borrowings.
The senior banker warned that, if the federal government did not reduce its fiscal deficit by reducing the volume of its bank borrowings and the prevailing higher interest rates, debt servicing costs were all set to hit the Rs 900 billion mark till June 30 this year. “The present 13 to 14 percent higher interest rates would increase government’s debts, which would adversely reflect on the fiscal deficit,” he viewed. “If the government spends Rs 900 billion only on debt servicing, nothing would be left for other development works,” the economist said. Citing the average 13 percent rate of return on the National Savings Schemes (NSS), the ex-SBP governor said the same should be brought down as such higher rates of return on saving schemes were not given in any part of the world.
Dr Hussain said that major beneficiaries of the NSS should be widows and pensioners and not the profit-making institutions. “Institutions should not be allowed to invest in the saving schemes, as only retailers and small depositors are allowed to participate in the NSS world over,” he informed. Giving a comparative analysis, Dr Hussain said that the average bank deposit rate was 7.5 percent in India, while the average return on government savings schemes was eight percent per annum. In Pakistan, the same stood at six and 13 percent, respectively, he said.
“The high rate in NSS is not only hindering growth of the mutual fund industry, but is also crowding out the private sector,” he said adding that “The government should control its borrowing and bring the rates (of return) on NSS down.” Regarding the fiscal policy, the senior banker stated that the government would have to take some “tough” decisions in the forthcoming budget, including taxing those with an income of over three lac rupees.
“It’s basically wrong to tax a certain sector like agriculture, we should instead tax those earning more than Rs 3 lac, whether they are from the agriculture, services or manufacturing sector,” he said The present “self-assessment” based tax system should be made the audit based, he suggested. In the coming budget, Dr Hussain said that the government should prioritise the swift completion of energy based projects to save the country’s fast depleting industrial production, resultant unemployment and economic growth.
“No country can develop from foreign debts. We should, instead, depend on local investment by utilising the surplus cash with agriculture sector through enticing investment in the mutual funds that give more, 12 to 13 percent, return against the banks’ six to seven percent,” Dr Hussain claimed. The economist warned the government against using the private sector, that of NSS, investment for decreasing its budget deficit. “This would add up to it’s debts,” he said.
Speaking on the occasion, Dawood Capital Management CEO Tara Uzra Dawood thanked Dr Hussain for his insight on the national economy and said that the event had signaled an exciting elevated era for her company.
