BUDGET DIFFICULT ACT OF BALANCING

THE FOCUS SHOULD BE ON ACCELERATING GDP GROWTH RATE RATHER THAN MOBILIZING MORE TAXES.

SHABBIR H. KAZMI
(feedback@pgeconomist.com)

Apr 2 - 8, 20
12

During the ongoing financial year, budget deficit has ballooned in the absence of inflow of aid, grants, and soft term loans. Added to this has been the cost of ongoing military operations and delays in getting payments under coalition support fund (CSF). As a result, the government has been forced to borrow more from the internal sources and commercial banks, which is having its own drawbacks.

Some experts say that there has been substantial increase in revenue collection but bulk of it goes towards debt servicing, defense expenditure, and little is left for developmental works. They insist that if government curtails its lavish spending the deficit can be contained but it looks if one is talking to walls as policy planners and economic managers appear deaf and dumb. For the prevailing situation, all the political parties are responsible but PML-N bears the prime onus because it rules the largest province of Pakistan.

Irony of the fate is that many groups manage to stay out of tax net thanks to the existing tax collection regime. Hardly any effort is made to catch 'the big and the most obvious fish'. One of the worst examples is tax collected on income from agriculture. All sorts of income is clubbed under 'income from agriculture' only to evade tax. Collection of tax from agri income is disappointingly low a big question mark of provincial tax collection authorities. Provincial tax authorities seem completely subservient to 'feudal lords'. Concealment and tax evasion are rampant.

Experts also say that state-owned entities (SoEs) are the biggest black hole as these swallow nearly half a trillion rupees. The most obvious and notorious are Pakistan Railways, PIA, Pakistan Steel Mills, PEPCO, and WAPDA. Hundred and thousands of jiallas have been inducted in these enterprises by all the successive governments, PPP being the largest beneficiary being in power for the third time.

Benazir Income Support Program (BISP) has become a charity program as it has failed in creating new employment opportunities. Over the years, a new breed of 'dignified baggers' has been created, which prefers to live on stipend rather than working. Critics of PPP often say that 'propagators of Roti, Kapra and Makan' have snatched whatever they had. The rich are getting richer and poor getting poorer. More and more people are being pushed below the poverty line.

Experts have the consensus that tax collection cannot be increased if extensive load shedding of electricity and gas continues in the country. They have been saying that there is no shortage of electricity or gas in the country. This is a 'self created crisis'. Gas connection to domestic consumers has been given to attain political mileage.

Permission for establishing CNG stations have been granted in violation of rules to the favorite ones, who are also involved in massive theft of gas. Similarly, electricity theft is also rampant. This could be judged from by ballooning circular debt.

Historically, the governments have been relying heavily on petroleum and gas levies and present government cannot be an exception. However, woes of consumers have increased because of crude oil prices hovering at record high levels, depreciation of Rupee and growing shortage of gas. Though Iran is ready to supply oil and gas at deferred payments, Pakistan under the US pressure is practically subdued to use this option. The US insists that if Pakistan enters into any such deal with Iran, it can also face economic sanctions.

Experts insist that this time the government should focus of accelerating GDP growth rather than making any attempt to impose new taxes. They say that new employment opportunities will be created once capacity utilization improves, which will lead to creation of new productive facilities. The most obvious opportunity is to facilitate textiles and clothing industry to operate optimum capacity utilization.

Planning commission, ministry of water and power, and ministry of petroleum and natural resources have completely failed in coming up with appropriate policies. The country is being run on stopgap measures. Never in the history had size of inter-corporate debt attained such a magnitude. Interestingly, ministry of finance is often accused for not making timely payment but no one raises a point that electricity distribution companies should contain theft and line losses. Government should be asked to deduct at source.

The most disappointing has been the role or NEPRA and OGRA, which have been allowing increase in electricity and gas tariffs rather than forcing the utilities to improve their cash flow, contain theft, and above all remove inefficiencies.

Fears are openly being expressed that with generation election becoming closer, the government will indulge in announcing a 'popular budget' comprising of new subsidies and developmental plans. Now there is no fear of missing the targets, as the country is not under any IMF program. However, this is a very incorrect perception. The country needs 'Letter of Comfort' from the IMF if it wishes to avail any loan from other multilateral financial institutions, irrespective of that Pakistan is under IMF or no IMF program. The country has to come up with 'homegrown plan', introduce supporting policies for boosting GDP growth rate. It is a pity that Pakistan finds it difficult to achieve 2.5 per cent GDP growth rate, whereas India aims at 10 per cent growth rate.

Let one point be clear that no country can become sovereign without achieving economic sovereignty. If Pakistan can achieve above seven per cent GDP growth rate in the past, it is capable of achieving even 10 per cent rate. However, to achieve this, the country will have to get rid of those who want Pakistan to remain a beggar than a star performer.