NationalVOLUME 14 ISSUE # 26

Signs of distant relief

Pakistan’s exports are expected to increase to $36.7 billion by year 2023-24. The pressure of current account deficit on the country will also ease out gradually from its peak of $19.9 billion in 2017-18 to $6.95 billion in the current fiscal year. The trade deficit is also forecast to decline to $24.9 billion in the current fiscal year from US $ 29.46 billion in 2018-19. The signs of relief, noted by the International Monetary Fund (IMF), are a significant development for the government and people of Pakistan.

 

In its recent staff report on Pakistan, the IMF has estimated that the Federal Board of Revenue (FBR) is likely to collect Rs5.5 trillion during the current fiscal year, which would increase to Rs7.001 trillion in the next year while the revenues would reach Rs8.3 trillion in 2021-2022 and Rs9.48 billion in the subsequent year on the back of policy measures committed by the Pakistan authorities. The overall revenues of the country will surge to Rs7.165 trillion in 2019-20, followed by Rs8.9 trillion in 2020-21, Rs10.6 trillion in 2021-22, Rs12.12 trillion in 2022-23, and Rs13.37 billion in 2023-24. With few million taxpayers filing tax returns and tax compliance generally very low, tax policy and administration measures will center on broadening the tax base while maintaining a low tax rate, aiming to ensure progress of the tax system, it added.

 

The IMF hoped additional 4-5 percentage points of the GDP in additional tax revenues could be achieved by the end of its program, bringing Pakistan’s tax ratio in line with “Emerging Markets.” In the near term, measures include removing exemptions and preferential treatment to reduce distortions in the tax system and broaden the tax base. These include the removal of GST exemptions and preferential rates, except for basic food and medicines, a measure that would significantly improve revenues, the report added. Greater inter-provincial harmonization and coordination of GST will also simplify filing procedures and increase compliance.

 

Pakistan’s economic policy during the last year has achieved remarkable results, Sina Finance, one of the largest financial news portals in China, reported. The report said the Pakistani economy has emerged from the crisis in the past year and gradually stabilized. The positive trend of the economic policy that reflects the stability of the Pakistani government is significant. Among them, improvement of the business environment, increase of taxation scale, adjustment of development focus and the optimization of foreign-related cooperation are its outstanding features, it noted.

The positive changes in the strong base have laid a relatively reliable foundation for the development of Pakistan in the next stage. The optimization of the business environment is conducive to expanding the attraction of foreign investment. The report pointed out that in the past year, the Pakistani government’s main investment department responsible for attracting foreign investment has approved the establishment of 11 special economic zones, which are distributed in the four provinces of the country. Besides, Pakistan has also implemented a series of reform measures to improve the ease of doing business. Taking the establishment of a company as an example, the report said the new company registration can be completed within one working day, the power supply can be in place within three months to four months, and the new building construction permit can be approved within three months. In the course of business, taxes, social security, and pension payments can be paid online, it noted.

 

Some recent indicators prove Pakistan is moving towards the right direction. Its current account deficit has narrowed significantly by 73pc to $579 million in July, the first month of the current fiscal year, following the government’s agreement with the IMF on implementing tough measures for a bailout of $6 billion. The current account deficit stood at $2.13 billion in the same month last year, the State Bank of Pakistan (SBP) reported. The colossal contraction in the deficit came on the back of a 26pc drop in imports and 11pc improvement in exports. The desired improvement in the two major heads – imports and exports – was partly achieved after the government implemented reforms under the 39-month IMF loan programme, which started in July.

 

The programme binds the government to undertake structural reforms, including increase in the key interest rate which stood at an eight-year high of 13.25pc in July, depreciation of the rupee, which fell by 32pc to Rs160 to the US dollar in FY19, upward revision in power and gas tariffs and an ambitious tax-collection target of Rs5.55 trillion for the current fiscal year among other tough conditions for steering the economy out of the crisis. A government crackdown on smuggling will help it achieve the tax collection target of Rs5.55 trillion while exports have surged after the rupee depreciated significantly. The government has targeted to contain the fiscal year 2019-20 current account deficit at $6.5 billion, as agreed with the IMF, compared to $13.5 billion deficit in the preceding fiscal year.

 

Textile exports have increased by 3.12pc during the first month of the current financial year (July-FY20) as compared to the exports of the corresponding month of the last year, according the SBP. In July, textile products worth $1.22 billion were exported against the exports of $1.18 billion during the same month last year. SBP Governor Reza Baqir believes the country has taken right decisions for reviving the slowing economy as their implementation has started bearing fruit.

 

The government hopes to bring stability to the country. However, its biggest challenge is rising inflation, which has made lives of the common people miserable. Inflation entered double digits in July, the biggest increase in five years and nine months. Inflation, measured by the Consumer Price Index (CPI), rose to 10.34pc in July from 8.9pc the preceding month, the Pakistan Bureau of Statistics said. During the same month last year, inflation stood at 5.84pc. The last time inflation entered the double digits was in November 2013, and it was 10.9pc. The government will have to devise an effective mechanism to check prices of essentials so that people could wait until harsh measure start bearing fruit.

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