Time to stand on our own feet

[Naveed Yaseen]

By M. Abbas Raza
An analysis of deteriorating economic conditions takes one to a crossroad. Are these the impacts of the current global financial crises, a case of economic mismanagement or an effort to tighten economic rope?

The economic managers say that the only option is to go to the IMF. The financial assistance from IFIs has always been on stringent economic conditions. Today, these conditions may as well be of strategic nature and may, perhaps include issues of national security.

It is time that Pakistan should learn lessons from its mistakes and instead of picking up the economic bowl once again, should stand on its own feet. It should generate all the resources it requires domestically and try to live within its economic means.

Apparently, the economic managers have not fully considered the options of generating internal financial requirements. The GATT / WTO provide clear cut rules and regulations for developing countries to take specific measure to support their economies.

Instead of looking for external balance of payments support, policymakers can take the following steps to shore up the foreign exchange reserves.

Foreign exchange depletion can be handled by:

(a) regulatory and punitive measures by the State Bank to stop the trade of dollars as a stock,

(b)Prevent money changers and banks from transferring dollars abroad without foolproof business or other legitimate reasons. For this, the Federal Board of Revenue and SBP should ask for fortnightly returns from the money changers and banks.

© money laundering laws should be strictly implemented

(d) export proceeds should be ensured within stipulated period.

(e) Transfer of deposits ofindenting commission on import/export should be made mandatory

(f) foreign exchange for the import of luxury/unnecessary items should be arranged by the importers through their own external sources. The government should issue a list of items with customs PCT numbers for the import of which foreign exchange from internal sources may not be provided, and

(g) strict actions should be taken against over- and under-invoicing.

Long-term measures on war footings need to be taken for enhancing exports through increased market access for goods and skilled personnel and resources be reallocated for import substitution industry.

The issues of trade imbalance are much more serious than being envisaged. Statistics indicate that our imports are being under-invoiced by up to 50 per cent. Some of the foreign exchange earned on exports on consignment basis is being routed through money changers instead of authorised banks and is not being surrendered to the SBP. This needs to be taken care of.

Various studies reveal that out of Rs100, the government collects 38 per cent of the total revenue and 62 per cent is shared by the tax payers, collectors and practitioners. If strict measures are taken, substantial additional revenue can be generated from the following sectors as given in the table:

In some other major essential commodities, there has been profiteering resulting to the great disadvantage to the consumers and concealment of income from the tax authorities of about Rs463 billion. This concealment has resulted in the colossal revenue loss on account of income tax of about Rs165 billion which is apart from the income tax evasion mentioned earlier.

In recent years, the real estate sector has witnessed enormous price appreciation. The prices of some other consumer commodities like rice, tea, pulses, beverages and gold have witnessed a substantial increase in prices. Similarly, consumer durables and industrial inputs have also witnessed substantial appreciation in their value despite the fact that the government had considerably reduced customs duty on their imported inputs. Adequate measures to tax these sectors can yield substantial revenue.

The government should consider levying high tariffs or even quantitative restrictions which takes full account of the continued level of demand for imports. The external trade needs to be restructured considering our commitments under the market access negotiation under the WTO regime.

Pakistan should renegotiate its bound level of tariffs taking into account (i) the needs of individual industries, (ii) use of tariffs to support our economic development programmes and special needs for revenue and (iii) all other relevant circumstances, including the fiscal, developmental, strategic and other policy requirements.

Overseas Pakistanis should be encouraged to invest or remit fifty percent of their liquid assets, for the protection of which, necessary guarantees be provided by the government.

The writer is former economic consultant NAB

http://www.dawn.com/2008/11/03/ebr14.htm