LAHORE: The Federation of Pakistan Chambers of Commerce & Industry’s Businessmen Panel (BMP) on Sunday asked the government to take serious measures to get rid of its dependence on foreign loans, as disastrous outcome of costly external and internal borrowings have resulted in 44 percent jump in debt servicing cost.
FPCCI former president and BMP Chairman Mian Anjum Nisar said that Pakistan’s medium-term debt repayment capacity has been weakening due to government’s absolute dependence on loans.
He warned that debt servicing at the end of FY 2023 might reach Rs5.5 trillion. Resultantly, fiscal deficit, mother of all ills, will be much higher than budgeted and expected, as it has already reached Rs1.7 trillion in first six months,.
Quoting the data, he said that in the first six months of FY 2023 total expenditure on debt servicing was Rs2573 billion against Rs1453 billion in the corresponding period of FY 2022. It was against the full year allocation of FY2023 at Rs3950.
He said that the Federal Board of Revenue collected Rs3.4 trillion from July to December 2022. After transferring Rs1549 billion funds to provinces under 7th National Finance Commission Award, the net available to federal government from tax and non-tax revenue was Rs2463 billion that could not even meet debt servicing of Rs2573 billion. Punjab is the most populous province of Pakistan with largest resources and budget size after the Federal Government and beneficiary of lion’s share from NFC Award. From July to December 2022, it received Rs 936 billion from the Federal Government and collected only Rs 142 billion of taxes at its own.
The total expenditure from July-December 2022 of Punjab was Rs 1059 billion whereas its total non-tax revenues were just Rs37 billion. In other words, it has a meagre surplus of Rs38 billion that reflects deposits of Rs36 billion in banks and Rs2 billion kept elsewhere.
In fiscal year 2019-20, Punjab received Rs1.2 trillion as share under NFC Award. For the last many years, Punjab’s performance in tax collection has been much below its real potential. The government turned the historically surplus budget into deficit and incurred huge debt, contrary to claims of achieving wonders by its economic wizards in the six federal budgets.
Punjab’s performance under the previous government was equally appalling. Official figures show that in the first half of FY 2023, Punjab failed to mobilize its tax and non-tax revenues according to its actual potential, as the highest local collection in six months of the current fiscal year came from sales tax on services.
Mian Anjum Nisar said that the country’s tax structure remained heavily reliant on indirect taxes, whose incidence on the relatively poor is greater than on the rich.
The power sector’s financial crises are also deepening with time and managers continue to pass on the sector’s inefficiencies and corruption onto the trade and industry through raising utility rates, trying to pass on the resulting political backlash onto IMF for insisting on full cost recovery, an economically sound policy instead of embarking on a reform agenda that would improve the power sector’s performance.
The government increased reliance on external borrowing by arguing that the rate of interest abroad was lower than domestically while artificially controlling the rupee rate, thereby showing low mark-up and principal payments when due in the budgets. He said that the government has failed to implement tax and power sector reforms agreed with the IMF which led to the suspension of the program.
That the country needs implementation of the reform agenda without any further loss of time is a fact.
Mian Anjum Nisar said that the government is mostly depending on non-tax revenue and borrowing to generate surplus budget, in an effort to minimize the budget deficit during the current fiscal year. He said that the government had agreed with the IMF to bring down the primary deficit to only 0.6% of the GDP but this budget deficit touched the all-time high as the government failed to enhance tax collection and reduce expenditures despite announcing two mini budgets in the last fiscal year and so-called austerity measures.
With a view to contain the current account deficit and improve foreign exchange reserves the government has now introduced import curbs which gave it some relief on the external front, he said and added that the same strategy has adversely impacted economic growth as decline in imports have hurt business activity in the country.
Due to the government’s halt on borrowing from the central bank, most loans have been channelled towards short-term treasury papers and the longer duration investment bonds, which have noticed a healthy demand due to the high key policy rate. He said that the recent report of SBP on economy also suggested that activity witnessed negative impact of lower imports.
He called on the authorities to strengthen fiscal discipline through additional revenue measures and efforts to contain current expenditure while protecting pro-poor spending.
Copyright Business Recorder, 2023
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