IPR report proposes slashing number of federal ministries

Published: February 10, 2016


LAHORE: With the country’s debt piling up each quarter, the Institute for Policy Reforms (IPR) has identified the country’s huge expenses as the main reason behind an unstable economy. In its latest report, IPR has recommended to cut down the number of federal ministries in an attempt to lower expenditure.

For greater fiscal management, the report suggests transferring several functions to provinces and getting rid of ministries at the centre. “Government may also take up zero-based budgeting through which it can decide whether to continue with some of the many autonomous organisations that exist.”

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Additionally, the report states that the government can also rationalise debt-servicing expenditure by locking in the present reduced markup for debt.

The report also addresses one of the economies most crucial aspects: loss making public sector enterprises (PSEs). It advises the government to revisit the way PSEs are managed and suggests separating them from the administrative control of their respective ministry.

The document recognises improvement in economic stability under the IMF programme. However, it states that the government must now focus on growth, while ensuring robust stability.

Pinpointing increase in investment as the key to job creation and economic activity, the report proposes a doable growth strategy for immediate implementation. An expansionary monetary policy would lead the economy out of the morass of the past eight years.

IPR’s growth strategy centres on three key areas – export increase, industrial revival and public investment. Despite stagnant exports, the currency has remained overvalued. The high value of the rupee came at a most inopportune time of slowdown in world trade. In fact, this was when many developing countries lowered the value of their currencies and this has placed Pakistani exporters at a disadvantage.

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To revive the industry, IPR recommends long-term project financing at fixed rates. Currently, banks do not have the incentive to do so. At present, they use State Bank loans (through OMO) to buy government paper and benefit from the interest rate arbitrage.

Public investment is the best means to expand jobs and boost growth. Scarce public investment has been a chronic problem in Pakistan. In addition, the inadequate funds available are often used for prestige projects without the desired economic impact. IPR recommends increase of the public programme to at least 5% of GDP.

One of the central parts of the report is its set of recommendations to increase tax revenue. “Government can increase the tax to GDP ratio by four to five percentage points, especially possible by improving tax administration and enforcement.”

The report recommends capital gains tax on property and rationalisation of import duties. It also recommends specific measures to enhance tax base by bringing in more individuals and companies in the tax net.

Published in The Express Tribune, February 10th, 2016.

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