Lahore - Economic experts are foreseeing a financial crisis in the upcoming fiscal as the government is preparing for presenting the budget, which – being on the verge of the general elections – could make the things messier.

The experts The Nation talked to were almost unanimous that one of the key culprits behind the brewing storm is foreign loans, which the outgoing government got too liberally at high interest rates, and now the dwindling fiscal space is making it hard to even pay the cumulative interest – what to talk of principal’s repayment.

In run up to the elections, it would be too difficult for the government to resist the temptation to spend heavily on popular initiatives and give a budget that would be people-friendly but unrealistic.

Former president of Federation of Pakistan Chambers of Commerce and Industry, Mian Idrees told The Nation that the FPCCI has submitted comprehensive proposals for the upcoming federal budget.

These include recommendations for incentivising investors, broadening of tax net through documentation of economy and simplification of tax system.

Idrees said the main objective of their proposals is to bring liberal investment policy, infrastructure development, broadening of tax base and job creation through industrialisation.

He said that the FPCCI has also suggested that the sales tax slab should immediately be curtailed to reduce cost of production and inflationary pressures. He urged the government to reduce sales tax to single digit and also cut corporate tax to make the upcoming budget business-friendly.

Reflecting on the poor state of economy, noted economist and former finance minister Dr Salman Shah said that only political will and drastic steps can revive the economy – which should grow significantly and constantly for visible impact. He advocated for raising the country’s tax base so that tax-to-GDP ratio improves.

Talking about the financial challenges, he said the government is relying heavily on expensive loans from foreign commercial banks and now repayment has become a big issue for the next government.

Dr Shah said there would have been no issue had these loans, borrowed at high interest, been used for productive purposes, including promoting exports and manufacturing sector, instead of using those just for balance of payment.

SBP former governor Shahid Kardar was of the view that various structural factors and high oil price shock are combining to result in a burgeoning of the current account deficit, resulting into loss of competitiveness of Pakistan exports and continuous rise in imports. He said excessive borrowing in the past to shore up reserves and preserve the rupee value artificially resulted in balance of payment crisis.

He said that short-term measures in the budget 2017-18 like improvement of cash flows of exporters through tax refunds and enhancement of regulatory duties only addressed the growing stress fractionally. These steps have to be supplemented by additional measures in the upcoming budget – including payments of duty drawbacks by banks along with export receipts, reducing taxes on fuel inputs and imports used for energy, and larger incentives for promoting export diversification.

Another expert Shahid Hasan Sidiqui said that the government measures in the last budget did not have sufficient impact to wipe out the growing deficit and it was no substitute to the structural reforms.

He said that concerns have already been expressed by the multilateral institutions about the deteriorating situation in the external sector but the government, instead of addressing the basic problems, was trying to secure further high cost loans from the international market through Eurobond and Sukuk.

Sidiqui said that the real solution of the problem lies in increasing productivity in the economy and improving competitiveness of country’s exports.

Noted economist Dr Hafiz Pasha said that the country was entering into a difficult phase in its economic history, as the incipient financial crisis appears to be turning into a mega mess in 2018.

He suggested that the overall policy framework should be strengthened and implemented in the upcoming budget 2018-19. Otherwise, Pakistan may face a default in its external transactions.

Quoting a Bloomberg Report, he said it has identified ten countries including Pakistan that are prone to a technical default in the foreseeable future.

Dr Pasha said the new government will have to negotiate very well with the IMF, as it will not be in a position to repay the $6.2 billion loan to the international lender. In the budget, there are three critical areas where deep reforms will be required in the domain of trade, fiscal and monetary policies, he added.

Pakistan Industrial & Traders Associations Front (PIAF) Chairman Irfan Iqbal said the single digit standard sales tax should be non-adjustable and non-refundable and it should be collected at the single stage of import or at manufacturing, except for high tax earning sectors including petroleum products, energy, telecom and tobacco.

In the value-added chain industry, the sales tax may be collected at 0.5 percent at each stage of value addition. In order to tackle the energy shortages, maximum funds should be allocated in Budget 2018-19 for construction of dams, tapping of Thar Coal and completion of Iran-Pakistan gas pipeline.

LCCI standing committee on economic reforms chairman Kashif Anwar voiced concern over excessively burdening the manufacturing sector that contributed 21 percent to the national economy and had a share of 70 percent in tax payments.

He said that provincial laws relating to the taxation of agricultural income should be implemented. He called for creating an integrated data warehouse and the first step in this direction would be sharing of information between FBR and other organisations such as NADRA, SECP and State Bank.

All Pakistan Textile Mills Association central chairman Amir Fayyaz stated that the government must support export sector. He said that instead of addressing structural issues, which would have attracted non-debt inflows, the government preferred to obtain expensive foreign loans for inflating its reserves which was now proving a costly choice.