Running an economy

Meekal A Ahmed April 22, 2010

MCLEAN: This is with reference to your editorial ‘Money from our foreign friends’ (April 21). You have touched on all the rights points. From 13.7 per cent of GDP during Benazir Bhutto’s government, our tax-to-GDP ratio has declined steadily and then remained constant at around 9.5 per cent or so. This year it is expected to fall to a resounding 8.8 per cent of GDP.

This is not the way to run an economy. Every budget, including the one round the corner, will talk about ‘broadening the tax base’, yet nothing happens. The principle is simple: income earned in any economic activity should be taxed and there should only be a very small number of productspecific exemptions and concessions in the tax structure. On your other point, I do not have the exact figures but Pakistan today, 62 years on, is more dependent on aid (or foreign savings more broadly) than before.

Not only that, the aid has been poorly spent as manifest in our frequent requests to the Paris Club to reschedule or write-off our external loans. Foreign direct investment needs to supplant aid over time. Other successful developing countries have done this. On a final point, I am not sure the US aid you speak of is a grant. The aid may have a grant-like component to it, meaning it may be concessional, but it does add to our external debt profile and is supposed to be paid back.