Economic outlook

Contrary to the claims, assessments and predictions by a number of economists and analysts, the FBR has collected Rs 1590.462 billion against the tax collection target of Rs 1588 billion for the outgoing financial year.
Compared to the tax collection of Rs 1329 billion during the year 2009-10, it represents a quantum jump, attributable to the reforms in the tax collection system introduced by the FBR and removal of the systemic maladies.
As a consequence of this achievement the government might also be able to bring the budgetary deficit down to 5.2% of the GDP against the targeted figure of 5.3%, notwithstanding the fact that US failed to provide $381 under Coalition Support Fund (CSF) as per commitment. Nevertheless, $200 million received from the ADB under the second-generation reform project for SECP and Rs 120 billion surplus generated by the provinces due to non-utilisation of World Bank loan of $162 million also contributed to reducing the budgetary deficit.
In view of these verifiable portents, the tax collection target of Rs 1,950 billion and bringing down the budgetary deficit to 4% of GDP envisaged in the budget for the year 2011-12, does not seem over-ambitious as generally perceived. The shift from indirect to direct taxes and the imposition of GST, proposed in the budget, are the essential tools for broadening the tax base and bringing more and more sectors into the tax net. The government envisages to add 2.3 million new heads to the fraternity of tax payers, out of which 700,000 have already been issued notices.
The imposition of taxes and bringing more and more people into the tax net is never welcomed by those who are affected by it and the governments all over the world, even in the most affluent countries, are faced with this dilemma because of the political repercussions of such measures. It is particularly more difficult for the governments during economic meltdown and the periods of economic adversity like the one faced by Pakistan. The government has indeed shown great courage and leadership in these difficult times by introducing these measures without caring for the political fallout, in the interest of the long-term health of the economy. The same strategy has been used all over the world to tide over the aberrations caused by the recent economic recession.
The government has also been able to fulfil its commitment with the IMF to bring the borrowing from SBP down to zero level at the end of the fourth quarter (April-June); a phenomenon that points to better expenditure management by the government. That might help Pakistan in reviving the $11.3 billion IMF programme of Stand-By Arrangement (SBA) for Pakistan. The availability of the much-needed resources will enable the government to meet its non-development and development expenditure and also contribute to reducing the budgetary deficit.
The allocation of Rs 730 billion for PSDP in the current budget as compared to Rs 466 billion for the last year, also reflects improvement in the economic conditions during the preceding financial year and will help in nudging the growth process. The emphasis on tackling energy crisis and improving the communication infrastructure are also steps in the right direction. The contemplated privatisation of the Public Sector Enterprises is a very pragmatic move dictated by the economic realities and will save the government Rs 300 billion being spent annually on running them. Another very prudent initiative in regard to encouraging investment and improving job scenario in the country is the decision to allow a five-year tax holiday to the investors who set up new industries without borrowing from the banking system.
The paradigm shift in the management of the economy and the strategies unravelled by the government during the last three years have indeed started showing positive results. Considering the fact that economy of Pakistan has been badly pummelled by the devastating floods, war on terror as well as the inclement economic environment at the international level, achieving a growth rate of 2.4 during the last financial year was not a bad performance at all. The increase of 26% in exports that touched US$24 billion mark, remittances in the vicinity of US$12 billion and the foreign reserves spiking to a record figure of US$17 billion, are also encouraging indicators of a brighter economic outlook.
Apart from the creation of revenue generation avenues and strategies for overall economic growth, the success of a government's economic policy is also judged by the measures aimed at promoting the well-being of the masses. From that perspective, the initiation of a scheme of targeted subsidies is not only a rational step from the economic perspective but it also conforms to the concept of social justice. While the poorer sections of society will continue to enjoy them, their withdrawal from the affluent segments of society will generate extra resources for the government besides having anti-inflationary impact. Similarly, the raising of the tax ceiling for taxable income from Rs 300,000 to Rs 350,000, enhancement in the salaries of the government employees, spike in pensions, increase in the allocations for the schemes in the Social Security Net and provision of items of daily use at cheaper rates through Utility Stores, are some of the steps aimed at promoting the well-being of millions of poor people and providing relief to them against the ravages of the hydra-headed inflation.