No quick fix to economic ills: Iqbal

Coming year to remain challenging; tax collection and exports major reasons.

ISLAMABAD:

Amid calls by the country’s leading economist to provide relief to the masses in the new budget, the government said on Friday that the coming fiscal year will also remain challenging due to difficulties in increasing tax collection, investment and exports.

“There are no quick fixes to the deep-rooted economic problems but in the first year the government has managed to stabilise the economy,” said Ahsan Iqbal, Minister for Planning, Development and Reforms. He was addressing a pre-budget seminar, jointly arranged by the Pakistan Institute of Development Economics and Friedrich Ebert Stiftung.

Iqbal said that during the first year the government brought an end in volatility in the exchange rate market and the rupee-dollar parity will be maintained at the current level (Rs98.6 to $1) in the new fiscal year as well.

There has been no financial scandal during the current govt’s first year, unlike the previous tenure when the media reported one after another scandal, reflecting an improvement in governance, he added.

While speaking about the new financial year, Iqbal said the next fiscal year will remain challenging. He said tax, investment and exports (what he calls TIE) have to go up as the current levels were not sustainable. “The results against these three goals will determine how quickly the government can achieve its overall economic goals.”

During the outgoing fiscal year, the government has missed its targets in these three critical areas. It is going to miss the revenue collection target by Rs225 billion and will collect Rs2.250 trillion in taxes at best, said Dr Ashfaque Hasan Khan, Dean of School of Social Sciences and Humanities of National University of Science and Technology.

Khan criticised the government’s budget-making approach. He said the FBR’s tax target is set after working out the expenditures, which is an incorrect strategy. He said like past six years, the FBR will again miss next year’s proposed target of Rs2.810 trillion and will collect Rs2.630 trillion at best.

The investment has also fallen short of target and the exports too will remain below the target of $26.6 billion.

The country’s renowned economist and former finance minister Dr Hafiz Pasha urged the government to come out of the mindset of extreme stabilisation and shift to revival of the economy. “Let the economy breathe, for God’s sake,” said Dr Pasha who is critical of the government’s over-emphasis on fiscal consolidation.

He said the government should give relief in the budget, and stipend under the Benazir Income Support Programme should be linked with the wheat-price index. He proposed the government to increase monthly stipend to Rs1,500 from the current Rs1,200 per month.

Dr Pasha also urged the government to freeze the increase in power tariffs as electricity prices were becoming counterproductive. He also called the budget makers to get rid of the monster of withholding tax regime, which is being used as the main source of revenue generation.

He urged the government to lessen the taxation burden of the industries and shift the focus to services and agriculture sectors.

Dr Pasha said the size of the services sector is Rs12 trillion but its contribution to taxes is only Rs400 billion. He said the agriculture sector amounts to Rs4 trillion and its contribution to the taxes is a meager Rs1 billion.

He also asked the government to re-prioritise spending besides improving the quality of spending.

He said it was not the right time to initiate Rs1.4 trillion new schemes as the government already has a portfolio of Rs4.4 trillion. Dr Pasha said the planning process has broken down in the country.

Responding to Dr Pasha’s views, Iqbal said the Ministry of Planning will gradually gain its role in economic policymaking.

Published in The Express Tribune, May 31^st, 2014.

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