- Former finance minister says loan agreements signed by Dar may prove detrimental for Pakistan’s economy
- FBR says govt will not put extra burden on people through increasing sales tax in upcoming budget
Former finance minister Dr Hafiz A Pasha on Wednesday claimed that the Chinese government’s investment in Pakistan amounting to $32 billion was actually a ‘loan’ as the PML-N government was leading the country into a “debt trap”.
Addressing the participants at a pre-budget seminar held under the aegis of the Institute of Policy Reforms (IPR), a think-tank formed to monitor economic growth and issues faced by business community of Pakistan, Dr Pasha, who is also managing director of the think-tank, further claimed that Finance Minister Ishaq Dar had signed loan agreements amounting to $52 billion with foreign countries for next decade within one-year time which may prove detrimental for Pakistan’s economy and people would have to payback these costly loans and the external loans might be doubled in next 10 years or so.
He said other than $32 billion loan from China, $11 billion loan had been approved by the World Bank, $6.64 billion by the IMF and $2 billion had been acquired through the launch of Eurobonds.
“This is too much. This is not acceptable and our next generations would face the dire consequences of this huge loaning policy,” remarked Pasha.
He said that Pakistan’s entire revenue collection consumed in only two heads – interest payments and security expenditures every year.
He asked the government to eliminate tax exemption worth Rs 200 billion in the upcoming budget 2014-15. Dr Pasha said that the government should withdraw the exemption.
He said that proposed revenue collection target of the Federal Board of Revenue (FBR) would be Rs 2,700 billion for the next financial year. He said the FBR’s target could reach Rs 2500 billion with normal growth, therefore the tax department should withdraw tax concession worth Rs 200 billion in the next budget.
Talking about the pay raise of the civil servants, Dr Pasha said the government should give a 10-percent salary raise to employees of BP-1 to 16.
The former finance minister was of the view that Pakistan’s budget deficit would reach to seven percent of the GDP by the end of June 2014 against the target of 5.8 percent set with the IMF. Citing reasons for high deficit, he said the FBR would miss the tax collection target by Rs 90 billion, as it would achieve only Rs 2,250 billion against revised target of Rs 2,345 billion. Similarly, the government would receive only Rs 55 billion from the auction of 3G/4G licences this year against the expectations of Rs 120 billion.
Dr Pasha said that these budgetary proposals 2014-15 are based on the fiscal deficit target of 6.5 percent. The tax-to-GDP ratio in the coming year has to be increased by 0.5 percent of the GDP. For an increase of 20% in the federal PSDP, with major investments in the water and power sectors, current expenditure growth will have to be restricted to less than 8 percent.
Furthermore, in order to reduce the current expenditure, reducing the size of the federal government, zero-based budgeting to determine the contribution of the existing autonomous organizations and rebalancing of the debt portfolio are some proposals presented in this report. Suggestions for better accountability were also made which are as follows: In view of the violation of (FRDL) Act, the federal government to present a detailed medium-term action plan to come within the limits imposed by the Fiscal Responsibility and Debt Limitation Act (FRDL) to the National Assembly, supplementary grants exceeding the annual voted expenditure should be reported to the Finance Committee of the National Assembly during the year, all discretionary funds to be abolished and greater scrutiny of the defence budget.
IPR report sets federal PSDP is set at Rs 420 billion in 2014-15. The priority should be given to the water and power sectors, and 50 percent of the next year’s PSDP should be allocated to these sectors as compared to 30 percent this year. New projects other than in sectors mentioned above should not be undertaken for the time being. The Pakistan Development Fund (PDF) may be brought into the Federal Consolidated Fund and grants received be used for energy investments rather than on transport projects.
Addressing the audience, former commerce minister Humayon Akhtar Khan said, “We have not published a report on energy and only shared what immediately could be done to improve situation. We will be uploading the papers, reports of the IPR at the think-tank website. We will also release reports on provincial budgets.”
Former HEC chairman Dr Attaur Rahman said that the story of energy in Pakistan was unfortunately a story of unabated corruption and this tale is repeated again and again.
“The national exchequer will continue to suffer until corrupt are punished and house is brought in order. Fusion energy experience is being carried out in France and if it succeeds, we will be able to create energy the way nature does.”
Energy expert Ashraf Hayat said that too much dependence on furnace oil in thermal sector was not right policy. He said line losses are closer to 17 percent while it was around 20 percent last year. Failure to collect bills is a major hurdle and until March, the billing losses were equal to the total billing losses in the last year.
“Governance issue needs to be dealt with immediately. 57 percent furnace dependence and only 33 percent gas in thermal sector. If 400mmcfd gas was provided, we can get 20500 megawatts of power immediately. However, improper provision of gas has hurt the power production badly,” he said.
“We have very irrational tariff structures. Any further increase in tariff would be counter-productive. There is a need to increase billing collections rather than tariff increase. Fuel adjustment charges have already been raised to 21 percent. Rationalising of tariff is need of the hour,” he added.
“We recommend that circular debt be settled immediately. We recommend shifting of gas from fertiliser to power sector,” he concluded.
Separately, the FBR said the government has decided not to put extra burden on people through increasing sales tax in upcoming budget.
In an Interview with Radio Pakistan, FBR Member Shahid Hussain Asad said that rate of sales tax would remain 17 percent in the budget. He said instead of increase in sales tax, the FBR would reinforce its collections mechanisms.
To a question regarding shortfall in revenue collections for current fiscal year, he said FBR has taken special initiatives to meet 2345 billion rupees’ target.
