Former Finance Minister Dr Hafiz Pasha on Wednesday stated that Pakistan is said to be in debt trap and incumbent government had signed/ agreed loans agreements worth of over $52 billion for next five to ten years including $32 billion Chinese investment, what he termed a 'loan'.
"The government has signed/agreed loan agreements worth of $52 billion from different sources including $32 billion from China, $11 billion from World Bank, $6.64 billion from IMF and $2 billion from Eurobonds", said Dr Hafiz Pasha, former Finance and Minister and Managing Director of Institute of Policy Reforms (IPR), while addressing a function. This is too much, which is not acceptable and our next generations would face the dire consequences of it, he added.
Presenting the budget recommendations of the Institute of Policy Reforms, Dr Pasha said that Pakistan's entire revenue collection consumed in only two heads i.e. interest payment and security expenditures every year. He suggested that government should eliminate tax exemptions worth of Rs 200 billion in the upcoming budget 2014-15 majority of income tax concessions. Giving details, Dr Pasha said that government should withdraw income tax concessions worth of Rs 110 billion, Rs 40 billion of custom duties and Rs 50 billion from general sales tax.
He said that revenue collection target of Federal Board of Revenue (FBR) would be Rs 2700 billion for next financial year 2014-15. However, FBR could reach to Rs 2500 billion with normal growth, therefore, the tax department should withdraw tax concessions worth of Rs 200 billion in next budget instead of imposing new taxes.
Talking about the defence expenditures, Dr Hafiz Pasha said that defence budged of Pakistan was Rs 908 billion during outgoing financial year, 43 percent higher than official figure of Rs 627 billion. Giving break-up, the defence budget also include Rs 132.7 billion of military pensions, Rs 5.3 billion administration, Rs 54.6 billion of Quasi Military Force and Rs 78.5 billion of public order safety, mostly police.
The IPR proposed to increase the budget deficit by 12 percent to Rs 714 billion for next financial year 2014-15, but it could be even higher if security conditions deteriorate.
Talking about the pay rise of the civil servants, Dr Pasha said that government should give ten percent increase in salaries to the employees of BPS 1-16. He added that previous government had given 78 percent raise in salaries to the civil servants in its five years tenure.
The former Finance Minister was of the view that Pakistan budget deficit would reach to seven percent of the GDP by the end of June 2014 against the target of 5.8 percent set with IMF. Citing reasons for high deficit, he said FBR would miss the tax collection target by Rs 90 billion, as it would achieve only Rs 2250 billion against revised target of Rs 2345 billion. Similarly, the government would receive only Rs 55 billion from the auction of 3G/4G licences this year against the expectations of Rs 120 billion. However, he said that government could bring the fiscal deficit to 5.5 percent if it included Rs 150 billion aid of friendly country and provinces able to show surplus budget of 0.6 percent of the GDP.
With the rapid increase in the fiscal deficit to above 8pc of the GDP, due to the falling tax-to-GDP ratio and rapidly rising current expenditures, especially on power sector subsidies, this report provides budget proposals which can facilitate the economy of Pakistan to revive from the current situation.
Dr Pasha, said that these budgetary proposals 2014-15 are based on the fiscal deficit target of 6.5pc. The tax-to GDP ratio in the coming year has to be increased by 0.5pc of the GDP. For an increase of 20pc in the Federal PSDP, with major investments in the water and power sectors, current expenditure growth will have to be restricted to less than 8pc.
Furthermore, in order to reduce the current expenditure, reducing the size of the federal government, zero-based budgeting to determine the contribution of the existing autonomous organisations and rebalancing of the debt portfolio are some proposals presented in this report. Suggestions for better accountability were also made which are as follows: In view of the violation of (FRDL) Act, Federal Government to present a detailed medium-term action plan to come within the limits imposed by the Fiscal Responsibility and Debt Limitation Act (FRDL) to the National Assembly, supplementary grants exceeding the annual voted expenditure should be reported to the Finance Committee of the National Assembly during the year, all discretionary funds to be abolished and greater scrutiny of the defense budget.
IPR report sets federal PSDP is set at Rs 420 billion in 2014-15. The priority should be given to the water and power sectors, and 50pc of the next year's PSDP should be allocated to these sectors as compared to 30pc this year. New projects other than in sectors mentioned above should not be undertaken for the time being. The Pakistan Development Fund (PDF) may be brought into the Federal Consolidated Fund and grants received be used for energy investments rather than on transport projects.