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EDITORIAL: The outgoing Shehbaz Sharif-led government budgeted 24.2 billion dollar external loans for the current fiscal year – 6,874.4 billion rupees at the exchange rate of 284 rupees to the dollar with 5,510.580 billion rupees (19.4 billion dollars) programme loans defined as budget support. Project loans were budgeted at 592.48 billion rupees (2 billion dollars).

Pakistan is currently on its twenty-fourth International Monetary Fund (IMF) programme and given that the identified budget support is premised on budgeted expenditure and revenue it is little wonder that multilaterals, including the IMF, now insist on upfront extremely harsh time-bound conditions and structural adjustments in persistently poorly performing sectors (particularly tax and power) - politically challenging conditions that were either not implemented in the past leading to programme suspension or simply reversed once the programme was completed.

In recent years bilaterals, including friendly countries, have publicly shown a reluctance to release pledges unless Pakistan is on a strictly monitored IMF programme with the objective of no longer agreeing to throwing good money after bad.

Once the staff-level agreement on the first review of the Stand-By Arrangement (SBA) is reached, as anticipated, budgeted external inflows from multilaterals and bilaterals are expected to continue to be disbursed.

It needs reminding that in spite of efforts by the then Finance Minister, Ishaq Dar, to access the pledges without implementing Fund conditions, the pledges remained undisbursed till the signing of the SBA agreement.

While a section of the media has reported that the Fund mission has contacted bilaterals directly to reconfirm their pledges yet two observations need to be highlighted. First, in the past being on an IMF programme automatically led to an improved rating by the three main international rating agencies – Standard and Poor’s, Fitch and Moody’s.

Unfortunately, even after the staff-level agreement was reached under the SBA on 29 June 2023, there has been no improvement in the country’s rating which implies access to loans from commercial banks abroad or incurring debt equity through issuance of sukuk/Eurobonds will be at unaffordable rates of return.

The government budgeted 1305 billion rupees as commercial loans from the banking sector abroad and another 435 billion rupees through issuance of Sukuk/Eurobonds or a total of 6.12 billion dollars – an amount which has not yet been realised.

And second common sense dictates that failure to generate 6 billion dollars must be accompanied by appropriate changes in the budget – a reduction in the current expenditure, which was inexplicably raised by 26 percent against the revised estimates of the year before in spite of the extremely narrow available fiscal space and/or increase revenue generation through reforming the tax structure that at present remains skewed in favour of the elite as indirect taxes, whose incidence on the poor is greater than on the rich, account for 60 percent of total tax collections while 75 to 80 percent of direct tax collections are in the indirect tax mode (withholding taxes on products) which Federal Board of Revenue continues to misrepresent in spite of an exhortation by the Auditor General of Pakistan not to do so.

It is important to note that Pakistan’s economy is not out of the woods yet and the resulting pain is particularly acute for the poor and the vulnerable.

While the caretaker economic team is rightly focused on the success of the first SBA review, which appears on course, yet there is a need to revisit the budgeted revenue and expenditure items through widening the tax net, implementing pension reforms to ensure employee contributions and seek voluntary cuts in the budgeted allocations for current expenditure from all major recipients.

If the caretakers succeed in enforcing these measures they would go down in our history as the team that made the difference.

Copyright Business Recorder, 2023


Comments are closed.

SAd Nov 15, 2023 07:40am
Maybe the next editor is sleeping or he has grudge will someone. All the reforms he is requesting are already implemented. Direct tax collection has increased significantly in the last two years and indirect tax collection increased nominally because of lower imports. In the last three years Pakistan tax collection almost doubled although in dollar terms it remains stagnant.
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Faisal Khan Nov 16, 2023 06:04pm
@SAd.. There is no grudge... kindly dig into the tax collection break up.. you will find that still almost 50% of the collection comes from Customs. while also 30% of the remaining direct taxation is via WHT. also please note that Tax collection should be proportionate to expenditure . We a running a 5-6 trillion budget deficit let alone an external balance of payment deficit.. Our loan servicing (interest) is more than 3.5 trillion. I will give you an extra point for your last sentence "although in dollar terms it remains stagnant.
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Faisal Khan Nov 16, 2023 06:15pm
We need direct taxation. Your Fertilizer sector is exempt. There is not tax on Agriculture, You hospitals are earning billions form poor patients mostly charge in cash ,, no tax.. Petroleum and gas sector no tax,, mining no tax , do you know we produce more sugar than we can consume and still some how run a deficit stock.. automobile sector hides their profits by importing expensive spares from abroad, and cannot produce the same in Pakistan, not because they are expensive in the native country.. but because they pay it so they can show lower profits, and then lower their tax.. and also not worry about their dividends since they have already siphoned excess amount via spares.. they still get to sell the car expensive... there cannot be any other reason that they could'nt localise in 40 years.. also how can those same car cheaper in other countries even if dollar parity is considered... we need some serious reforms..
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Faisal Khan Nov 16, 2023 06:17pm
and then there is PIA and steel mills.. wah g waj... 15000 employee of PIA need around 40 Billion deficit excluding what PIA earn in operations to keep their JOBS.. we can do hell with these 15000 and spent this 40 Billion in BISP to support 5 Million families @ 8000 per family with food.
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