In an exclusive interview with Business Recorder the Advisor to the Prime Minister on Finance, Revenue and Economic Affairs with the status of a federal minister Miftah Ismail claimed that when he took over the portfolio around three months ago the rate of growth was 6 percent, revenue was increasing (projected revenue for the current year 4 trillion rupees which is invariably overstated prior to the end of fiscal year on 30 June), and inflation was low at 3.8 percent. This is in sharp contrast to what his predecessor Ishaq Dar inherited whose policies, Ismail contended, account for the improved state of the economy today. While this statement is gracious in praising Dar's contribution to country's economy, a man who remains extremely influential with the party's high command, yet his contention about the state of the economy is not only at odds with the assessment by international agencies, including the International Monetary Fund (IMF), but also domestic economists, whose criticism Ismail's predecessor routinely dismissed as politically motivated.
Ismail, like his predecessor, maintains that increase in revenue indicates that business turnover is growing. This is an unfortunate statement and one would urge him to look closely at the sources of revenue rise during the PML-N administration: (i) withholding tax, erroneously counted as income tax by the government, is in reality in the sales tax mode, and even though the rate a filer who has already paid his income tax is lower than the non-filers yet it is additional taxation on the filers which explains why the non-filers pay the higher rate but do not begin to file their returns; this item represents a 71 percent rise in just five years - from 2012-13 to 2017-18 budget. In total terms in the budget of 2012-13 income tax was to generate 932 billion rupees while the current year's budget envisages 1.577 trillion rupees; and (ii) the tax on petroleum and products is adjusted to ensure that in the event the international price of oil fluctuates government revenue does not. In some months, the rate of a petroleum product has been greater than 45 percent.
Independent economists have repeatedly challenged the government's data particularly the rate of growth and provided evidence of manipulation by citing the lack of rationalization between data released by the Pakistan Bureau of Statistic (PBS) and other government ministries/departments as well as credible industry sources. Repeated requests during the past five years for a face-to-face meeting with the PBS officials to discuss and resolve these concerns have met with bureaucratic indifference.
Ismail refused to acknowledge that debt was rising, and on several other occasions has stated that the absolute debt is not important but that debt to GDP ratio is which, he claims, is around 66 percent. Three factors need to be taken into consideration when analyzing Ismail's claim: (i) if the GDP is manipulated to show higher growth than is in fact the case total debt as a percentage would be understated. It is in this context that economists argue that tax to GDP ratio is in fact in excess of 70 percent; (ii) gross domestic debt rose from 7.6 trillion rupees in 2012 to a whopping 16 trillion rupees today - or more than doubled in just five years; and (iii) subsequent to the completion of the EFF there are few multilaterals or bilaterals with sufficient confidence that Pakistan would stay the reform course without rigid quarterly IMF monitoring integral to any programme loan, accounting for a marked reduction in inflows under this account. However, reliance on foreign commercial bank loans, with a high rate of return and a small amortization period, has grown and the PML-N during its current tenure has borrowed over 7.9 billion dollars under this head (and during the first seven months of the current year 1.77 billion dollars has been procured against the budgeted amount of one billion dollars).
Be that as it may, Ismail's proposal to allow some withholding taxes with full and final tax liability to be adjustable is appreciated as it would render the tax structure more fair for the filers; ensuring that the Public Sector Development Programme will consist of ongoing projects only must also be appreciated as this would make claims of pre-poll rigging redundant. He was upbeat about the government's ability to limit the fiscal deficit to 5 percent of GDP subject to 0.5 percent surplus by provinces, which is not likely given that it is an election year.
Ismail has been in this extremely challenging job given the extremely challenging issues facing the economy since 26 December 2017 or less than three months; and while his spirited defence of the state of the economy is no doubt his party's requirement given the forthcoming general elections yet he did maintain that he will present a technocratic budget which necessitates accepting ground realities. Sadly, he appears not to do so which, as stated above, gives relevance to IMF's warning notably that "risks to Pakistan's medium-term capacity to repay the Fund could increase on current policies."