EDITORIAL: Finance Minister Miftah Ismail while addressing an event organised by the Institute of Business Administration (IBA) stated that the motto of the government is to “live within our means” — a pledge that would receive overwhelming support from not only economists but also across the political divide because the raison d’étre of Pakistan economy’s sustained fragility is largely attributable to the steady rise in spending from one year to the next.
This rise is reflected by the percentage of the total budget or total current expenditure allocated for interest payments on loans procured, domestic and foreign (that include payments on debt equity notably sukuk/Eurobonds). In the budget for fiscal year 2021-22 the interest payable accounted for 36 percent of total budgeted expenditure and 40 percent of total current expenditure.
Disturbingly, Ismail’s budget 2022-23 envisages interest payments amounting to 41.5 percent of the total budget and 45 percent of budgeted current expenditure — clearly an increase from last fiscal year.
One, of course, would have hoped that the Finance Minister had put his money where his mouth is and had reduced instead of increasing reliance on borrowing which would, in turn, have necessitated containing the current expenditure to last year’s level rather than increasing it by one trillion rupees.
The International Monetary Fund (IMF) has, one may assume, pressured the government to raise revenue by as much as the rise in expenditure — a trillion rupees — which explains why Ismail had to up total tax collections by Federal Board of Revenue (FBR) envisaged during his budget speech in parliament at 7 trillion rupees to 7.4 trillion rupees through amendments to the Finance Bill 2022 as well as an ordinance with not even a quarter of the fiscal year over yet.
In addition, Ismail has pledged to the IMF a contingency plan to become effective if in any one month the revenue target is unmet (not quarterly as is the usual practice which provides some room to the authorities) that includes: (i) sales tax on fuel, at present zero, to reach 17 percent eventually; (ii) streamline sales tax on sugary drinks (to generate 60 billion rupees); (iii) remove other unwarranted sales tax exemptions; and (iv) levy a tax on cigarettes in two tiers with a levy of 2 rupee per stick proposed.
Sales tax is an indirect regressive tax whose incidence on the poor is greater relative to the rich. That this contingency plan is likely to be triggered any time soon stands to reason as around 600 billion rupee higher tax collections in the current year are projected on the basis of 5 percent growth rate which is not unlikely but impossible, subsequent to the floods.
And while the government’s reliance on indirect taxes as a source of revenue in the budget accounted for 63 percent of total collections (not including the withholding tax in the sales tax mode which is inappropriately included in direct tax collections) the contingency plan would further compromise the quality of life of the poor, the lower middle classes as well as the middle classes of this country.
Ismail also stated during his interaction at IBA that the government is diverting the budget allocated for Public Sector Development Programme (PSDP) to the flood victims.
While one cannot but support this move even though it would have a further negative impact on the public sector PSDP-led growth (which is significant in Pakistan) yet one wonders why Ismail and his co-signatory Dr Murtaza Syed, Acting Governor of the State Bank of Pakistan, failed to flag the devastation caused by the floods in the Letter of Intent (LoI) dated 16 August when the scale of the floods was already quite known.
It is hoped that the cabinet as well as parliament takes cognizance of this ominous silence on the floods and provides an explanation as to why the matter was not flagged in at least the LoI, which is a mandatory requirement for IMF’s Board consideration of the next tranche release.
Copyright Business Recorder, 2022
Comments
Comments are closed.