Despite its resilience and some strong fundamentals, Pakistan’s economy is now facing multiple challenges. In addition to strategic location, the country’s other strong fundamentals are: a market of over 160 million people, an emerging middle class and an enviable record of economic reforms and policies. Still in place, these fundamentals contributed to the economic stability and a remarkable sustained growth exceeding 7 per cent over the last four years.
What now eludes the country is political stability since March 2007. As political instability is adversely impacting the economy, it is the ardent wish of the citizens that political stability takes root in the country soon. As far as the economy is concerned, the country’s exports have stagnated for the last couple of years, while the imports are constantly rising. The trade deficit, last year, stood at $13.5 billion, whereas it is likely to be much higher this year.
The budget deficit, which was originally projected at 4 per cent of GDP (equivalent to Rs400 billion), might rise to over 5.2 per cent. The increase in the international oil prices and subsidies being provided by the government on POL products, electricity and wheat flour, the cumulative effect of which is likely to swell to Rs280 billion or 2.8 per cent of GDP. Though the increase in oil prices and power tariffs on February 29, 2007 has marginally reduced the budget deficit, but the economy still continues to be haunted by huge oil and power subsidies of over Rs180 billion.
Meanwhile, an upsurge in food prices, power outages and the inflationary impact of rising oil prices in the international markets have a direct impact on purchasing power of the common man. A deteriorating law and order situation owing to rise in acts of terrorism has further compounded the situation. To keep its balance sheet in tact, the government shall have either to increase the volume of its revenues or cut down on expenditure, both developmental and non-developmental.
The government is reportedly considering to slash the development expenditure by Rs 75/100 billion of the total that presently stands at Rs525 billion (including Rs150 billion funding to be arranged by the private sector). However, the government also needs to concentrate on the adoption of austerity measures because its non-development expenditure which has swelled by Rs400 billion during the last eight years. A rise of Rs490 billion in the tax revenues, which increased from Rs300 billion to Rs790 billion during the last eight years, which would go a long way in helping the development projects. But, the increase of Rs490 billion in tax revenues is largely nullified by the sharp increase of Rs400 billion in its non-development expenditure due to extravagance in expenditure and heavy perks enjoyed by the top hierarchy.
The situation is quite critical as the FBR is already finding it difficult to maintain its target of revenue collection, which was projected at Rs1025 billion for the current fiscal year. It has already been slashed down by some Rs150 billion. However, the FBR could only collect Rs575 billion in revenues during the first eight months (July-February) of the current fiscal year. The revenue shortfall on corporate returns till January 31, 2008 was Rs22.7 billion, as the tax authorities could only collect Rs2.3 billion instead of Rs24 billion during the corresponding period in the last fiscal year.
Further, the national exchequer continues to suffer heavy losses, which are reported to be over Rs300 billion annually. Further, there is little progress towards expanding the tax base, in particular bringing the agricultural and service sectors into the taxation net and eliminating non-standard exemptions enjoyed by the country’s elite classes.
Many services and agricultural sector are still out of the tax net despite making substantial contribution to the overall GDP growth. Though the authorities conceded this fact, they are hesitant to move towards the desired objectives because of political considerations.
The cost of tax exemptions witnessed a steep hike during fiscal year 2006-07 as it soared to Rs184.9 billion. According to knowledgeable sources, the quantum of tax exemptions has further gone up during the current year.
What now eludes the country is political stability since March 2007. As political instability is adversely impacting the economy, it is the ardent wish of the citizens that political stability takes root in the country soon. As far as the economy is concerned, the country’s exports have stagnated for the last couple of years, while the imports are constantly rising. The trade deficit, last year, stood at $13.5 billion, whereas it is likely to be much higher this year.
The budget deficit, which was originally projected at 4 per cent of GDP (equivalent to Rs400 billion), might rise to over 5.2 per cent. The increase in the international oil prices and subsidies being provided by the government on POL products, electricity and wheat flour, the cumulative effect of which is likely to swell to Rs280 billion or 2.8 per cent of GDP. Though the increase in oil prices and power tariffs on February 29, 2007 has marginally reduced the budget deficit, but the economy still continues to be haunted by huge oil and power subsidies of over Rs180 billion.
Meanwhile, an upsurge in food prices, power outages and the inflationary impact of rising oil prices in the international markets have a direct impact on purchasing power of the common man. A deteriorating law and order situation owing to rise in acts of terrorism has further compounded the situation. To keep its balance sheet in tact, the government shall have either to increase the volume of its revenues or cut down on expenditure, both developmental and non-developmental.
The government is reportedly considering to slash the development expenditure by Rs 75/100 billion of the total that presently stands at Rs525 billion (including Rs150 billion funding to be arranged by the private sector). However, the government also needs to concentrate on the adoption of austerity measures because its non-development expenditure which has swelled by Rs400 billion during the last eight years. A rise of Rs490 billion in the tax revenues, which increased from Rs300 billion to Rs790 billion during the last eight years, which would go a long way in helping the development projects. But, the increase of Rs490 billion in tax revenues is largely nullified by the sharp increase of Rs400 billion in its non-development expenditure due to extravagance in expenditure and heavy perks enjoyed by the top hierarchy.
The situation is quite critical as the FBR is already finding it difficult to maintain its target of revenue collection, which was projected at Rs1025 billion for the current fiscal year. It has already been slashed down by some Rs150 billion. However, the FBR could only collect Rs575 billion in revenues during the first eight months (July-February) of the current fiscal year. The revenue shortfall on corporate returns till January 31, 2008 was Rs22.7 billion, as the tax authorities could only collect Rs2.3 billion instead of Rs24 billion during the corresponding period in the last fiscal year.
Further, the national exchequer continues to suffer heavy losses, which are reported to be over Rs300 billion annually. Further, there is little progress towards expanding the tax base, in particular bringing the agricultural and service sectors into the taxation net and eliminating non-standard exemptions enjoyed by the country’s elite classes.
Many services and agricultural sector are still out of the tax net despite making substantial contribution to the overall GDP growth. Though the authorities conceded this fact, they are hesitant to move towards the desired objectives because of political considerations.
The cost of tax exemptions witnessed a steep hike during fiscal year 2006-07 as it soared to Rs184.9 billion. According to knowledgeable sources, the quantum of tax exemptions has further gone up during the current year.
5 comments:
it just shows the poor managment and corruption of the 'democratic government'.
I believe our power hungry political establishment has been pin pointed in depth here by Miss Bajwa ,you managed to grasp the effects ont he economy with an in depth analysis although you failed to mention the social and economical effects of our political instabilities.
loved how you used the statistics to enrich you article.Just brilliant hibba!!
Na haathi say na ghortay say
a really objective perspective to these issues, i agree your use of extensive research has helped create an amazing article!
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