Next year will be year of stabilisation for economy: Dr Abdul Hafeez Sheikh
26 May, 2019
Advisor to Prime Minister on Finance Dr Abdul Hafeez Sheikh Saturday unveiled government’s short- and long-term economic roadmaps, focusing on fiscal consolidation and revenue mobilisation, to put the economy on growth trajectory after steering it through the stabilisation phase of one year.
Addressing a press conference here, the advisor said the next year will be the year of stabilisation for the economy, during which the focus will be on saving the economy from different vulnerabilities, and after achieving the target of stabilisation, the journey to growth will start. He said the upcoming budget for fiscal year 2019-20 will come with austerity measures to reduce the government expenditures, adding that civilian, military and private sector will contribute in reducing the fiscal expenditures.
He said the government has also devised a comprehensive mechanism for gradual reduction of electricity losses from current Rs 38 billion per month to zero by 2020. He said the Federal Board of Revenue (FBR) will be given Rs 5.5 trillion revenue collection target for the next year and this target can be achieved by taking many strategic measures. He said enhancing tax collection is imperative to provide relief to the vulnerable segments of society with the provision of subsidies in different sectors.
The adviser said Pakistan is having lowest tax to GDP ratio in the region, which is just 11% compared to 16-20% in the regional countries. He said only 2 million people pay taxes in Pakistan, which include 0.6 million salaried class, adding that 85% of the total tax is being paid by just 360 individuals or companies.
The advisor said there are around 341,000 industrial utility connections but only 40,000 are registered for sales tax, while out of 3,100,000 commercial consumers, only 1,400,000 are the registered taxpayers. Same is the case with bank account holders as only 10 percent of account holders are taxpayers, besides out of 100,000 companies registered with the Securities and Exchange Commission of Pakistan (SECP), only 50,000 are filers. The advisor said the government has recently announced the asset declaration scheme and given an opportunity to individuals to declare their undisclosed assets by paying just 4% taxes, adding that the government will go after the tax evaders once the deadline for this scheme ends on June 30.
The adviser said that the International Monetary Fund (IMF) loan programme that Pakistan has entered into has a lower rate of interest as compared to other programmes. He acknowledged that the programme is being debated upon heavily in the media as well as by the country’s intelligentsia. “The IMF is an organisation which has been formed solely to assist member countries which are faced with financial difficulties,” he said. “It is not a new thing and many countries have availed the facility as have we in the past many times. The programme we have obtained has a magnitude of $6bn and is spread over three years. The good thing about it is that the rate of borrowing is much lower than other programmes. The interest rate is 3.2 per cent,” he added.
Sheikh said that entering the programme will send a good signal to the international community that Pakistan wishes to take its economy forward in a disciplined manner. “People will find incentive to form alliances and partnerships with us,” he added.
Sheikh laid out a roadmap for what is to come in the coming weeks with regard to economic developments in the country, indicating that important decisions will be made after the upcoming budget announcement. He highlighted six points to this effect:
1. In Pakistan, due to the benami law and other traditions of the past, there is a lot of money which is not part of the formal economy. A scheme will be introduced to make all the cash, real estate and other assets – both here and abroad – part of the economy.
2. The oil facility provided by Saudi Arabia worth $3.2bn per year for three years will become operational on July 1. The pressure on foreign exchange reserves will be reduced as a result.
3. Besides the IMF programme, we will be able to borrow an additional $2-3bn worth of programme loans from the Asian Development Bank and World Bank.
4. The annual budget will be announced. The government’s philosophy and determination to bring Pakistan on track for stability and prosperity will reflect in the budget.
5. The Islamic Development Bank’s deferred payment facility worth $1.2bn will continue in the year to come.
Meanwhile, the Federal Board of Revenue (FBR) has issued forms under the amnesty scheme for assets within the country and abroad. The forms can be filled at the FBR portal. The scheme can be availed by all tax defaulters and the companies to declare and whiten their assets not declared until June 30, 2018. Under the scheme, separate forms are required to be filled for assets within the country and abroad. The whitened cash assets will have to be kept in Pakistani bank accounts.