Country’s economy continues to be in a stabilisation mode strictly in accordance with an agreement the PML-N government reached with the International Monetary Fund (IMF) in Dubai as growth prospects are still quite dim. The question is: Are we really moving towards growth anytime soon? Fiscal consolidation and a reduction in the fiscal deficit constitute main objectives of FY16 budget strategy. Over-optimistic projections of revenue and understated expenditures are the hallmark of our bureaucracy. To this we now need to add the creative accountancy of the present Finance Minister Muhammad Ishaq Dar – a successful Chartered Accountant. Unfortunately, however, Dar appears to be overworked and tired as he is easily lured into temper trap. But Dar needs to understand that media all over the world have the last word and the Finance Minister would be well advised to remain cool. The anger management professionals generally advice that once you are calm, express your anger, and as soon as you’re thinking clearly express your frustration in an assertive and non-confrontational manner.
The Finance Minister, in his budget speech, on Friday, cited accolades given by JETRO, OICCI, Goldman Sachs, Moody’s, Standard and Poor, Nielsen and Bloomberg on the improvement of Pakistan’s economy. However, he also needs to recognise some stark realities. Pakistan ranked 107th in the ‘Ease of Doing Business’ Index of the World Bank/IFC in 2013 and had fallen to 127 in 2014. The UNDP has ranked Pakistan 146th in the ‘Human Development Index’ compared to 135th position of India and 142nd of Bangladesh. The World Economic Forum has placed Pakistan at 129 in ‘Global Competitiveness Index’ as compared to India at 71 and Bangladesh at 109. Economist Intelligence Unit ranks Pakistan below India in the ‘Food Security Index’. And, Pakistan is in the high alert zone of ‘Fragile States Index’ of Institute of Peace, Washington. So we do not need to be selective in heaping praise. And, there is nothing in the Finance Bill 2015 to improve our dismal and sad position in the world. In fact, the Fund has rightly warned that slippages in policy implementation could discourage investment, weaken growth prospects and delay needed structural reforms. So, let us not count the eggs before they are hatched.
The Finance Minister claims that around 2 to 2.5 million new jobs will be created in the country in the construction and 16 allied industries. He first needs to create an enabling environment for this to happen. Prime Minister Nawaz Sharif had established a high-level steering committee headed by the Finance Minister Ishaq Dar for Low Income Housing Policy and Programme. And, five working groups were created and these committees finalised their reports in October 2013. The Prime Minister was rightly disappointed at the Asia-Pacific seminar, held in Islamabad, a couple of weeks back. This commendable initiative requires strong and fast track implementation. But our fiscal woes and over-extended financial crunch do not allow it. Will this happen? We do not know yet!
There is expertise available in the country who can assist the Finance Minister. The real issue facing the poor living in Katchi Abadis is title ownership. There are 18 steps that need to be taken and each step needs greasing of palms. This has been and can be overcome by opening of sub-registrars’ offices in these localities and provide the poor with clean titles to the lands they occupy. Once this is done banks can provide the mortgage financing provided they can get repossession of the property quickly in the event of a default. This requires a proper legislation which can be done. It was done in the case of GIDC for domestically produced gas. Was it not? Pakistan’s banking share of home mortgages is pathetically low – 0.24 percent of GDP; in India it is 9 percent and in the developed world over 85 percent.
FBR needs to be restructured and transformed into an autonomous organisation with highest quality of resource and training. The country’s principal tax machinery needs an independent Policy Board. The cost of compliance needs to be reduced. More investment is needed in its IT infrastructure having a robust technology support so that there can be focus on analytics and data mining.
Not only is our tax base narrow, it is also woefully shallow. Only 16 percent of tax filers pay income tax of over a hundred thousand (or one lakh) rupees. And, only four percent pay over one million. As many as 38 percent pay no tax; and 69 percent of filers do it up to Rs 20,000. The Finance Minister himself has conceded that the ‘Super Tax’ levied in the Finance Bill 2015 will be levied on 40 corporations, eight AOPs and a few individuals (less than 400 in total). The Prime Minister has appointed Haroon Akhtar Khan Minister of State as assistant to the Finance Minister and made him responsible for revenue strategies. But the die has already been cast. Will Haroon be given the freedom to revamp FBR? Therefore, it will remain business as usual. In fact, FY16 Budget will place pressure on cost of living on account of administrated prices rising. In the absence of a wage freeze we shall remain in ‘dogs chasing their tails’ syndrome. In a nutshell, however, Dar has given us not only hope, but disquiet as well.
The Text appeared in the Editorial of Business Recorder today.