Ex-finance minister warns of difficult times ahead

Projects spike in imports, current account deficit and drop in remittances

LAHORE:

The Covid-19 pandemic, Afghanistan crisis and uncertainty on the political and economic fronts will definitely affect Pakistan’s economy in a grave manner, cautioned former finance minister Dr Hafiz Pasha.

Speaking at a seminar titled “Pakistan Economy - Challenges & Solution” on Tuesday, he pointed out that the government was accepting refugees from Afghanistan despite pledging neutrality some time ago.

“This will prove to be a burden on the country’s weak economy,” he said.

Pasha said that IMF’s conditions for the resumption of $6 billion loan programme were stringent as they included hike in gas, power and fuel prices and a limit on subsidies.

He termed prime minister’s approval of difficult conditions unfortunate for the economy.

“The industrial sector is running the whole taxation system of the nation as it is the largest contributor to the tax revenue,” he said.

Pasha added that Pakistan’s tax-to-GDP ratio of 12% was higher than Bangladesh’s (8%), hence, Islamabad was excelling on this front.

He suggested that the government should reduce power tariff for the industry, citing that it would enhance the tax revenue threefold due to the reduction in cost of doing business.

He warned of difficult times ahead because the country reported historic high imports of $6.3 billion in June this year while the current account deficit stood at $1.6 billion in the month.

“Total annual import figure will soar to around $70 billion, which is impossible to manage with export earnings of just $25 billion,” he said.

The former finance minister stressed that the current account deficit in FY22 would surpass FY21’s number because the country was all set to enhance payments under debt servicing by an alarming 35%.

Appreciating the receipt of record high remittances of $29.4 billion in the previous fiscal year, he projected a decline in the amount sent home by overseas Pakistanis during the ongoing fiscal year.

“Pakistanis spend around $3-4 billion on foreign travel annually, however, this amount was saved in FY21 and it helped lift the remittances upward,” he said.

He underlined the need for at least 7% GDP growth to absorb the large number of unemployed youth, eradicate poverty and manage the rising public debt.

“To achieve this, the country needs an equitable taxation system and high export growth,” he added.

Published in The Express Tribune, July 28^th, 2021.

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