ISLAMABAD - Dr Ashfaque Hasan Khan, former advisor to the ministry of finance on Thursday asked the federal government to move towards job rich growth from stabilisation, which would increase spending on social sectors like education, health and other basic facilities.
“Job rich growth should be the slogan of the government. The time has come to move from stabilisation to growth”, said Dr. Ashfaque Hasan Khan who is currently the Dean and Professor, NUST Business School at seminar, organised by the Institute for Policy Reforms. The country is in IMF programme from last six to seven years, which focuses only on stabilisation by curtailing the budget deficit but it also increases the spending on the social sectors, he added.
He further said that government spent only 4 percent on social sector like education, health, drinking water and other as against 12 percent spent on the infrastructure during outgoing financial year 2014-15. “The country’s average GDP growth remained at 3-3.5 percent in last seven years as against the annual population growth of 2.1-2.2 percent, which means real per capita income increases by 1-1.5 percent per year”. Former Chairman Federal Board of Revenue (FBR) Abdullah Yusuf recommended conversion of FBR into an autonomous organisation, as the revenue division should devise strategy and FBR should implement the policies. He particularly referred to weak governance and enforcement by tax authorities. He said that inequitable policies (including exemptions and amnesty) along with an undocumented economy have led to the low revenues. He called for withdrawal of exemptions and broadening the tax base. It was important to rationalise corporate and individual income tax rates and to phase out fixed and presumptive tax rates. To improve compliance FBR must simplify tax returns. It must make non-compliance expensive. Tax policy must also incentivise investment in the country. He called for a more prominent and rigorous role for provinces.
FBR must strengthen tax MIS, introduce data warehousing, and a strong audit system through automated systems. There is need also to build HR capacity. GOP could significantly add to its revenue collection by following these recommendations for improving tax policy and tax administration, he said.
Humayun Akhtar Khan, Chairman IPR, said that government must take these measures in earnest. It must not merely give the title of ‘growth’ to the new budget. By accepting IMF’s parameters in the seventh review, GOP already seems to have settled for another year of stabilisation.
Khan said government must focus on industrial diversification and growth for sustainable development of the economy. Industry must transit into new technologies and higher value addition. A number of issues stymie industrial development. These include inadequate private sector credit, an overvalued rupee, and power shortage. He said that rather than expand tax base, tax officials take the easy route of harassing existing taxpayers. FBR’s new requirement for banks to report transactions is the major cause of shift of capital to Dubai.
He emphasised access to capital. To fill the void left by DFIs, he called for Banks to open special windows for long-term project finance at fixed mark up and dedicated funds to upgrade technology as well as to acquire foreign brands. GOP may seek lines of credit from multilateral agencies for private sector lending. He said that stock exchanges must become a true source for equity. GOP must allow direct transfer from recognised foreign banks to invest in industry and infrastructure projects.
An effective EXIM Bank must provide financing at competitive rates for export of capital and other manufactures. Duty exemption on capital goods in prioritised sectors would also spur growth. Government must facilitate land availability for industry in urban areas.
Noted economist, Dr. Pasha reiterated that economic stabilisation has brought low economic growth. Government failed to achieve GDP growth target last year and will fall short this year too. The time has come to switch from stabilisation to revival. However, the Government has yielded to IMF pressure to carry on with stabilisation in 2015-16. They have agreed to reduce fiscal deficit again to 4.3pc GDP in 2015-16 from 4.9pc this year. FBR’s estimated revenue of Rs 3.1 trillion for next year requires a growth rate of over 19 per cent, not achieved in the last two years. GIDC has been imposed and Government has agreed to reduce power sector subsidy.
Apparently, the Federal PSDP has been restricted to Rs 580 billion for 2015-16 though inclusion of CPEC projects required a PSDP size of Rs 750 billion. GOP has increased allocations for highway and energy sectors projects and reduced these for key sectors like water, higher education, health and railways.
It is unlikely that the economy will grow at a rate above 5pc in 2015-16. Also, unemployment and poverty may continue to rise. Alarmingly, and perhaps for the first time, literacy rate has fallen by two percentage points in 2013-14. Other social indicators are also declining.
How can we promote growth and employment in the presence of IMF targets? First, the tax policy should focus to broaden the tax base and not raise tax rates. Second, monetary policy should remain expansionary and improve private sector access to credit at lower cost. SBP did right to reduce policy rate to 7 per cent recently. Third, the rupee is overvalued by about 10pc. Exports are suffering and import-substituting industries face stiff competition from cheap imports. These measures could stimulate economic growth, at least partially.