ISLAMABAD: Former Governor State Bank of Pakistan (SBP), Dr Ishrat Hussain, on Saturday, said predictability and consistency of policies are critical for a viable political economy and to attract investment in the country, deploring that around 60 percent of the national economy is outside the tax net.

He was speaking at the Achieving Fiscal Sustainability session on the second day of the conference under “Reforms for Bright Future; Time to Decide”, organised by the World Bank in collaboration with the Pakistan Institute of Development Economics (PIDE).

While opening the session as moderator the WB Regional Director for South Asia, Mathew Verghis, pointed out that the gap between revenue and expenditure increases Pakistan’s fiscal deficit, which in turn creates a lot of challenges and contributes to inflation and imports.

He added that Pakistan’s revenue is about 12 percent of the GDP expenditure is 19 percent and low revenue is required to be changed. This fundamental gap drives lots of challenges in Pakistan and contributes to inflation as well as imports.

The real benefit from changes of public finances would come from having quality of expenditure and revenue that reflects priorities and policies as per aspirations of the people. And this can be consistent with different level of expenditure and revenue.

Pakistan’s politics, economic policies need to be aligned

He said that the panel would be discussing short-term and immediate need to close the fiscal deficit, at least, partially, and medium-term requirements Pakistan wants over time in terms of expenditure and revenue in consistent with growing dynamic and prosperous society.

Former governor State Bank of Pakistan (SBP) Dr Ishrat Hussain said that predictability continuity and consistency of the policies is critical in political economy, adding that if every government would bring in new policies and paradigm how investors could have confidence that investment being made by him would have desired yields.

So continuity, consistency, and predictability of policies are key for a viable political economy but if prime minister is insecure, he would not take difficult decisions. He said that politicians want their own loyalists instead of competent people as finance secretary and chairman FBR and this is not a viable solution.

He further stated that there is a need to unpack the fiscal situation as there has been too much attention on federal side of fiscal equation, whereas, elephant in the room is provincial finances. However, he deplored that neither the WB nor researchers have analysed as to what has been happening to the provincial expenditure.

Hussain added that 60 per cent NFC including grants go to the provinces and 40 per cent is retained by the federal government. As opposed to what the provinces get, their delivery in terms of allocations for health, education, drinking water etc had not increased because of consolidation by provincial governments.

Hussain pointed out that 40 per cent of expenditure are incurred by the provinces but their contribution to the revenue is only 10 per cent – one per cent of the GDP – and they are sitting on an agriculture income tax, which is 22 per cent of value added. He added that provinces are sitting on properties tax in urban areas, real estate and services sector tax, so 60 per cent of the national economy is outside the tax net.

Hussain added that the federal government is paying interest payment, PSDP projects of provinces and as well as for BISP, social net transfer to the provinces but the provinces are not doing anything in order to help themselves.

While wrapping up the discussion of the session, Verghis said that fundamental shift is needed in the economy to put the Pakistan in different trajectory whether it is about fiscal federalism differently, about the role of SOEs, competition between provinces, between companies, thinking about the role of non-standard institutions including defense. He said that these fundamental questions have to be addressed domestically and choices are to be made by the society.

In a televised documentary video shown before the discussion on the session, people complained about narrow population paying taxes and heavy reliance on indirect taxes, tax exemptions being provided to very wealthy are narrowed or moved away.

While speaking at the last session on achieving energy sector’s sustainability session at afternoon, Tahir Basharat Cheema former MD PEPCO stated that policies, governance as well as managements, and operational level issues are primary reasons for the energy sector’s crisis. Additionally, he said that tariff is in bad shape.

There is a need for privatisation of DISCO, said former secretary Ashfaq Mehmood, adding that the DISCOs are failing to recover tax and if the country go into open access and market system, the private sector would prove better and efficiency in the power sector would improve.

Tauseef Siddiqui, ex-chairman NEPRA said that only good thing for the power sector is the country has more power than its requirement and problems in the power sector are multifaceted and have to bring down prices for which first thing is governance as well as bringing down fuel mix.

Earlier, in his keynote address, Professor Stefan Dercon said that there is a need to have bargain for development and growth. He said that the African countries like Ghana are growing at the same level as Pakistan in terms of GDP without a fear of default.

He said that crisis provides an opportunity as was in the case of Bangladesh and India in 90s, and earlier China and Indonesia. He said that elephant in the case of Pakistan is at home and elite bargain is needed for growth and development by creating consensus among different stakeholders.

In his closing remarks, WB’s country director Najy Benhassine said real success of the conversation would be that this crisis should not be fixed by fixing temporary measures and this is the time to decide for durable growth consensus, Pakistan has human capability to make the shift and solution for Pakistan would come from home and not from the donors.

Copyright Business Recorder, 2023

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SianSumroo Sep 24, 2023 07:49am
Why did not he do it when he was in control of things?
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Awami Sep 24, 2023 10:03am
@SianSumroo, Why you did not say he was not able to do his work ( He can give reasons and blame others ). Failure is failure. ( One can always find excuses)
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MUHAMMAD Aquib Sep 24, 2023 10:38am
Since sixty percent are non tax payers,so dharna should be done in front of their offices
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Mubashir Munir Sep 24, 2023 10:54am
Please act on Dr Ishrat Hussain's advise if you want to progress
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IMTIAZ CASSUM AGBOATWALA Sep 24, 2023 04:07pm
60 pc of economy outside tax net ? That's not true . Even the common man pays indirect taxes, like on petrol, utilities, transport, groceries etc. What is missing is good governance and judicial utilization of resources.
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Pakistani1 Sep 24, 2023 05:43pm
Dr. Sahib has been in position of power multiple times. While his statements sound right, I wonder what exact actions he took while he could to correct the wrongs. Seems to have lots of ideas when not employed, which are put on back burner once he a job!
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Retired Sep 24, 2023 05:57pm
Why this fascination of squeezing everyone and everything for taxes?! Why pay more taxes? For more free electricity for govt officials? For larger protocol conveys for the rulers? For more corruption? This talk of new taxes is ridiculous as long as there is no good governance! They'll blow all those trillions on shady deals and we'll be back to where we are right now!!
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Aamir Sep 24, 2023 07:01pm
People would not mind paying taxes if they got anything in return. Here our tax money is wasted on defense, corruption oriented development projects and wasteful govt current expenditure. More tax collection means more corruption and wasteful expenditure.
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