KARACHI: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has urged the federal government to declare a state of economic emergency and implement proposed reforms in order to moderate the impact of the current economic turmoil.
In a letter to the Prime Minister, the FPCCI President Irfan Iqbal Sheikh expressed deep concern about ongoing economic turmoil amid continuously depleting foreign reserves and tremendous inflationary pressure. He said that the trade deficit has reached $35.5 billion whereas the import bill spiked to daunting $58.8 billion during July-March 2022. In addition, higher interest rates tend to erode the fiscal capacity of the government by enhancing the cost of debt servicing.
The FPCCI president said that the government borrowing stood at around 63.6 percent of the total outstanding loans in March 2022. Higher policy rates erode the fiscal capacity of the government as the cost of debt increases. FPCCI recommended reducing policy rates from 12.25 percent to 7.0 percent which would allow curtailing debt servicing of short-term loans by at least Rs 300 billion.
He said that the net budgetary impact due to SOEs has reached around 23 percent of the total budget deficit in 2021-22 and suggested to introduce an SOE reform/ privatization strategy with measures that can at least reduce SOE’s share in the budget deficit by 08 percentage points during 2022-23. This will help save around Rs 273 billion, he added.
FPCCI said that the current structure of personal income tax in Pakistan is relatively less progressive. The total number of income tax slabs in Pakistan is 11 as opposed to 5-7 slabs in peer countries. It is recommended to reduce income tax slabs from 11 to 5-7 slabs in order to increase the progressivity of income tax. According to the IMF estimates, this would help mobilize additional revenues worth Rs 200 billion (or 0.3 percent of GDP) by FY2024.
The FPCCI recommended to revise the FED mechanism to the single tax regime by implementing a FED rate of 70 percent across the board on the retail price of cigarettes in line with the WHO’s suggestion. According to the Social Policy and Development Centre (SPDC) estimates, FED up to 70 percent of the retail price would help mobilize additional revenues worth around Rs. 240 billion.
FPCCI said that Pakistan is currently encountering alarming Non-Communicable Diseases including diabetes and obesity. Pakistan has ranked as the country with the 4th highest number of type 2 diabetic cases. High consumption of carbonated/ sugar-sweetened drinks is one of the main causes of these diseases. In line with the WHO, World Bank, and Diabetic Association of Pakistan suggestions; it is recommended that the federal excise duty on carbonated and sugar-sweetened beverages must be increased from the existing rate of 11.5 percent to 20 percent in order to reduce the consumption of the sweetened drinks.
FPCCI said that despite soaring global oil prices, the previous government has maintained the fuel and energy prices by introducing subsidies worth around Rs 250-300 billion ($1.5 billion) with a commitment to keep them static till the end of the current fiscal year. However, global oil prices have escalated by around 40 percent since December 2021 amid the Russia-Ukraine war. The FPCCI contends that fuel and power subsidies must be rolled back on a priority basis as these subsidies are fiscally unsustainable.
Regarding measures for energy sector, the FPCCI while proposing the government to seek public support for the short-term energy crisis and the need for conservation and to curb fuel imports asked for limit gas availability by SSGC/ SNGPL according to their regions for 1-3 hours on daily basis after Eid and redirect gas for power generation. Similarly, motor gas (MOGAS) be made available by provinces every 4 days whereas HSD must have no restrictions due to needs in the agriculture and transportation sectors. FPCCI asked the government to request nationals for the reduction in usage of electricity during 6-9 pm and operation of ACs at 22 degrees centigrade during the day. Scheduled load shedding may be initiated for 2 to 4 hours per day to help curb pressure on the current account amid the ongoing economic turbulence.
The FPCCI said that arrangement of fuel for power generation requires G2G aggressive action and proposed to replace spot buying with medium and long-term contracts.
Copyright Business Recorder, 2022