News Analysis |
Federal Finance Minister, Miftah Ismail, has admitted that if Pakistan failed to hit the bold targets laid out in the much-talked-about 2018-19 budget, Pakistan will have to go to the International Monetary Fund (IMF) for financial assistance. Mifta looked confident and assured the participants of a post-budget seminar, organized by the southern regional committee of the Institute of Chartered Accountants of Pakistan (ICAP) that the PML-N government will not go to the IMF if it follows the program presented in the 2018-19 budget.
Derided by the ever-increasing twin-deficit and huge public debt, Pakistan’s economy remains on the edge, especially due to plunging foreign reserves and stagnant tax revenues, which have been historically hovering around 10% of GDP. The government has given a bold program to increase the tax collection. Mifta believes that the tax to GDP ratio, which was 10.1% in 2013, will increase to 13.2% this year.
If the government manages to increase the number of taxpayers and further improve on the increased tax collection of Rs. 3,900 billion this year, the total revenue collection will be higher next year. The government expects to significantly increase the 1.2 million current taxpayers, which is the only fraction, out of the 200 million population, paying taxes. Mifta expects more people to come in the tax net but admitted that the effect of the measures given will be long-term.
The trade deficit for goods, services, and primary income stand at $29.7 billion in the current fiscal year from July 2017 to March 2018. The assurances and robust export policies coupled with effective agricultural and industrial policies, the government may be able to avert going back to the IMF.
Therefore, in short run, the revenue collection can even decrease, given the fact that the government has decreased the tax rate and provided tax relief to the salaried class. The tax base will be enhanced, while tax rates are being lowered in the 2018-19 budget. There is no denying that Pakistan achieved the growth rate of 5.8% and is growing fast. However, this growth failed to culminate in the job growth or higher employment rate. Under the heading of population, labor force and employment, no figure of unemployment was given in the latest Economic Survey of Pakistan.
It only mentions that the government has started a revolutionary program – the ‘Prime Minister’s Youth Programme – for the socio-economic development of youth to combat unemployment in the country. Moreover, according to the 2016 financial data, the unemployment rate was 5.9 % and currently, it may be hovering around 6 %. Nonetheless, it should be noted that this rate is much lower than the countries with similar growth patterns.
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According to World Bank, 250 thousand more Pakistanis will be working age every month through 2025. To maintain this rate, Pakistan needs to add 1.4 million jobs per year, which needs a lot of effort and effective policies to encourage foreign investment, along with the competitiveness of the domestic industry outperforming regional competitors.
Pakistan faces many challenges. Circular debt is currently estimated at Rs. 1000 billion. Additionally, twin deficit and high public debt remain a major threat. The public debt to GDP ratio has reached 66.3% from 64% in the previous regime, according to Economic Survey of Pakistan. However, recently the government has accumulated more debt, which makes it 70.1% of GDP. Similarly, the central government’s debt was Rs, 14,984.7 billion, which has increased to Rs. 22,906 billion in February 2018.
If the government manages to increase the number of taxpayers and further improve on the increased tax collection of Rs. 3,900 billion this year, the total revenue collection will be higher next year.
This is the increase of almost 52.86 % in the PML-N’s tenure. The government gave Rs. 541 billion in tax exemptions, which includes relaxing the customs duty by Rs. 198.2 billion. With this in mind, the government believes that inflationary regressive taxes introduced will be able to generate enough to counter the effect of exemption and concessions provided. The trade deficit for goods, services, and primary income stand at $29.7 billion in the current fiscal year from July 2017 to March 2018.
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The assurances and robust export policies coupled with effective agricultural and industrial policies, the government may be able to avert going back to the IMF. Otherwise, economists believe that Pakistan has little chance of avoiding another IMF program. The government may be able to delay it for now but for next government, staying afloat without the IMF clutches will be difficult.