The fiscal budget 2022-23 presents a very bleak state of the economy with a soaring fiscal deficit. The budget failed to propose measures on (i) debt retirement, (ii) effective domestic revenue mobilization, (iii) revival of sick industry, (iv) realistic fixation of POL prices, (v) effective inflation control, and (v) overall measures to take the economy out of the current morass. These issues should be the top priority in the budget for 2023-24. Measures being taken by the government for generation of additional revenue by imposing tax on luxury items will increase under-invoicing and mis-declaration causing revenue loss, thus proving counterproductive. On the other hand, the country is faced with serious challenges which could take the economy below the peril point due to depreciation of Pakistani rupee resulting in increase in POL prices / inflation, making life difficult for the low-income group to meet the two ends, unnecessarily increasing the burden of foreign debts. Inflationary impact on industrial inputs and arbitrary increase in energy tariffs is rendering domestic production uncompetitive in the international markets. Balancing trade and current account deficits and settling circular debts will also not be easy.
The general public and the downtrodden is developing a sense of fear and deprivation of being hard hit by the ruthless artificial hyperinflation, rising unemployment, threats of economic collapse and political instability. Increase in petty crime / looting to make the two ends meet for survival has become the only option for them with looming fears of total anarchy in the country.
The economic managers seem to be totally ignorant of the mechanics of tax evasion, controlling inflation, POL pricing and legal aberrations involved in it. Nor they seem to have the vision to propose a debt retirement policy and revival of economy and the industry. The focus, on the contrary still seems to be on ad hoc measures to control inflation by injecting subsidies to the few essential food products. This would, however, again be counterproductive as firstly the subsidy might not reach the intended beneficiaries due to poor economic governance, administrative flaws and corruption in the system. Secondly, the suppliers and producers would each time increase the prices of these commodities expecting more and more subsidies. Thus, prices have to be controlled by stringent economic, demand and supply, and strict administrative measures and not by subsidizing.
The economic managers need to keep themselves abreast of the mega tax evasion cases which are costing the country colossal loss, and if controlled can turn the fate of the nation. Some of the main areas of annual leakages and financial drainage being (a) evasion of taxes and duties to the tune of Rs. 6000 B, (b) POL sector over pricing Rs. 500 B, (c) pilferage of foreign exchange in exports US$1.5 B, (d) counterfeiting of currency and legal instruments Rs. 300 B, and (e) siphoning out of US$10 B from the country in imports.
Controlling pilferages of foreign exchange in exports, counterfeiting of currency and legal instruments and siphoning out of foreign exchange from the country in imports is obviously the sole responsibility of the Governor of the State Bank of Pakistan (SBP) who should take immediate cognizance of the fact if the SBP desires to stabilize the Rupee Dollar parity and controlling depletion of reserves.
During the last couple of years, the food commodities, consumer products and consumer durables, inter alia, have witnessed enormous and manifold appreciation in their prices. In many cases taxes and duties on various industrial inputs have also been reduced yet no price reduction was witnessed and the producers increased the prices under the garb rupee depreciation. If adequate measures been taken to tax these sectors, substantial amount of revenue can be collected.
The review of poorly negotiated tariffs under earlier free trade agreements and careful future market access negotiations with Turkey, Thailand and Korea etc., considering the principles of the GATT / WTO viz. (i) reciprocity and mutually advantageous basis, (ii) individual needs of the country and industry, (iii) the need for a more flexible use of tariff protection to assist economic development and the special needs to maintain tariffs for revenue purposes, and other relevant circumstances, including the fiscal, developmental and strategic needs will be of immense importance.
Development of an export policy with increased market access supported with domestic vocational and educational support and increased international competitiveness for conforming goods to international mandatory standards, etc., is the need of the hour. Revival of sick industrial units and optimization of capacity utilization cannot be ignored and should be one of the priorities of the agenda. One of the major factors of sick industry is substantial under-invoicing by commercial importers and certain domestic industrial units causing colossal revenue loss and clandestine transfer of dollars to the exporters causing PKR depreciation and adversely affecting the indigenous industry.
The other areas which need to be covered under the national economic agenda pertain to the formulation of policies which encourage fresh industrialization and direct foreign investment in the country. Policy to restructure and reform the bleeding government organizations and corporations should also be in the sight while formulating the national economic agenda apart from across-the-board eradication of mega economic corruption and rampant evasion of federal taxes and duties.
It is necessary and expedient that the looted national wealth should be recovered and retrieved from both domestic and foreign safe heavens. The economic managers with applied background, stakeholders and technical experts be tasked to prepare a fool-proof national economic agenda. The agenda should, inter alia, formulate long term debt retirement and domestic revenue mobilization, trade, industrial and tariff policies which could direct the scarce resources towards desired prioritized national objectives.
No compromise on nukes: Ishaq Dar
At the time of the previous reviews, several freindly countries had made commitments to bilaterally support Pakistan. What IMF is now asking (is) that they should actually complete and materialise those commitments. That’s the only delay...
It has been extensive engagement, unusual, too lengthy, too long, too demanding, but we have completed everything,”
(Dawn, March 17, 2023)