Economic performance: IPR blasts government’s ‘bizarre policies’

Report also questions IMF’s diagnosis of Pakistani economy .

ISLAMABAD:

The federal government is implementing “bizarre economic policies” and did not pass on the full benefit of a 15% further reduction in the prices of petroleum products, resisted one-forth cut in electricity prices and denied 20% cut in wheat prices to consumers, revealed a report by an independent think tank.

In a critical review of the half fiscal year performance of the government, the Institute of Policy Reforms came hard on the government for artificially maintaining the rupee-dollar parity that adversely affected exports. According to the think tank’s managing director Dr Hafiz Pasha, “rupee was 18% over-valued against the US dollar”.



Dr Pasha, who remained an important member of Prime Minister Nawaz Sharif’s 1997-1999 cabinet, also criticised the International Monetary Fund (IMF) for its “partial diagnosis of the economy”, questioning the quality of technical missions of the IMF to Pakistan.

While sharing his findings, Dr Pasha said that the government was implementing bizarre economic policies and was not taking advantage of rare reduction in global prices.

“The price of wheat flour should have been reduced by Rs9 per kg in domestic market, POL prices by Rs10 per litre and electricity prices by 25%,” said Pasha. “Had the government taken these actions, it would have been far more popular among the masses.”

Dr Pasha also criticised the government’s decision to introduce four mini-budgets and said it would have a net impact of Rs160 billion.

He said by increasing GST rate on high speed diesel to an unprecedented level of 37%, the government would raise Rs20 billion. He said the government was misleading that the revenue impact of the move would be neutral.

Dr Pasha said that it was bizarre to subsidise international wheat consumers by giving subsidies on wheat export instead of passing on the benefits to domestic consumers.

Pasha also came hard on the government for artificially maintaining the rupee-dollar parity at near to Rs102 to a dollar and said the rupee was overvalued by 18% against the US dollar. He said the decision has made exports uncompetitive, adding that Pakistan’s currency appreciated by 15% against the euro, which have denied the benefits of GSP Plus.

He also criticised government’s policy of resorting to heavy foreign borrowings and said net foreign borrowings in the first half of the fiscal year remained at $2.5 billion. He said $1 billion of it was used for consumption purposes instead of spending on development.

The IPR report also found faults in public finances. Dr Pasha said the government was understating expenditures to show a good fiscal performance. He said the first-half’s budget deficit of 2.2% of Gross Domestic Product was achieved by delaying payments on account of debt servicing.

Dr Pasha said there was revenue crisis in the making and the FBR will not be able to collect more than Rs2.6 trillion as against the original target of Rs2.810 trillion. He said the government should understand that heavy taxation was counter productive.

“The government has not pursued any reforms in taxation and energy sectors,” said IPR Chairman Humayun Akhtar Khan. He said the country was heading towards the USSR syndrome that had collapsed due to economic reasons.

Published in The Express Tribune, March  6^th,  2015.

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