Economy suffered at least $6bn loss last fiscal year: Hafeez Pasha

[Naveed Yaseen]

ISLAMABAD: The head of high-profile Panel of Economists, Dr Hafeez A Pasha, said Wednesday that as per conservative estimates the economy was facing financial losses worth $6 billion for becoming part of the US-led war on terror.

Delivering AR Kemal Memorial Lecture, organised by the Pakistan Institute of Development Economics (PIDE) Dr Pasha said that the Obama administration had just announced $1.5 billion assistance per annum in order to compensate for the losses borne by Pakistan after joining the terror war. However, he said, the amount was much less than the conservative estimates of up to $6 billion during last fiscal year 2007-08.

He said that the government had failed to deliver on the promise of slashing current expenditures as element of charged expenditures of the ministries are not showing cut in their expenditures despite Prime Minister’s clear instructions where he himself cut down PM Secretariat expenditures by almost 40 per cent.

The government has not done much to decrease its current expenditures rather it has axed development expenditures by 40 per cent across the board without considering any important areas of the economy.

The non-salary expenditures, he said, went up to Rs100 billion, showing a growth by 22 per cent during the current fiscal year.

He also said that the government did not take required measures on tax side and if the FBR collected Rs1,200 billion against the target of Rs1,300bn, it would be an achievement. “Keeping in view tax slippages, the fiscal deficit target can go up to 5 per cent of the GDP,” he said and added that the IMF was quite lenient on Pakistan and breach of fiscal deficit target would not harm Islamabad in terms of getting the next tranche from the Fund.

He also said that the downside risks to the economy were the growing cost of mis governance, which needs to be improved.

He also said the Musharraf regime in its first three years from 1999-2002 successfully implemented macroeconomic stabilization program under the IMF programme but at the cost of poverty taking 7.5 million people in its clutches and 1.2 million persons got unemployed after the IMF programme. The country’s growth was also compromised.

Citing an example about the cost paid by the people of Pakistan, he said, “the operation was successful but the patient was need to die.”

He claimed that the panel of economist prepared homegrown stabilisation programme under the dispensation of the incumbent regime, which was taken by the IMF for granting $7.6 billion package to Pakistan under the Stand-By Arrangement (SBA).

Talking about differences between the strategy recommended by the panel of economist and the programme approved by the IMF, Dr Pasha said that the panel recommended continuing Research and Development support to textile sector while the IMF asked to implement free exchange rate regime.

Pakistan moved so fast on trade liberalization that it required to reverse some of the policies because it resulted into import led consumption to please the rich. We should retreat on trade liberalisation, said Pasha. The government should impose regulatory duty on non essential imports. The model recommended nine policies including both fiscal and monetary policies. The report also recommended the mobilisation of domestic resources rather than depending too much on external sources and foreign debt. “This will lead to debt un-sustainability,” he added.

Service sector tax and increase in excise duty and for the support of new emerging industries.

India has depreciated its currency by 28 percent, Indonesia by 31 percent to maintain competitiveness. This is a challenging task for Pakistan to maintain its competitiveness in the world market.

He further said that for the last two to three years when the fiscal space was good and there was enough room for developmental expenditure the government blindly approved every project without looking to the outcome and important of these projects.

“We also suggested that SBP should increase the interest rate by 2 percent and not more than that. We also recommend increasing the return on national savings. We also advise the government for the regulation of public sector imports, broad based regulatory duty and for export rebate,” said Pasha.

IMF condition of increase in the tax rate is not rational. “We should withdraw the exemptions and develop the provincial taxes,” he concluded.

http://www.thenews.com.pk/daily_detail.asp?id=170306