KARACHI: Pakistan may not be able to service its debt next year due to serious financial crisis, a leading economist said.
“The economy is facing serious challenges with high public debts and the lowest GDP growth,” said Dr Shahid Hassan Siddiqui, an economist at a pre-budget seminar organised by the Institute of Chartered Accountants of Pakistan (ICAP) on Monday.
This year the budget will be presented in a scenario when the economy is worst and facing risks and challenges. “Inflation is continuously in double-digit for the last five years and investment to GDP was lowest for 37 years and it is feared at an all-time low this year,” he added.
Rise in the energy prices witnessed historic high and most of the macroeconomic targets were missed during the present government tenure, he said. “Next year Pakistan may not be able to service its debts,” he added.
Dr Siddiqui said that Pakistan will have only option to service its debt to again go for IMF loan programme, which would be much tougher for the country.
He suggested that the government should appeal overseas Pakistanis to bring back their savings in the homeland and the government should pay them an attractive return on their contribution.
About the war on terror, he said, the country should not rely on the United States because the war only incurred losses to Pakistan.
He quoted figures that the United States was only given 0.2 percent of the GDP where the losses are around 8.5 percent of the GDP in the war on terror.
During Musharraf’s era, Pakistan’s total public debts were increased from Rs3,200 billion to Rs6,700 billion. “The present government has pushed the tally to Rs12,800 billion,” he added.
Interestingly, despite huge debts neither new project was initiated nor development works were undertaken, he said.
Dr Siddiqui said that the budget deficit for the current fiscal year is likely to be Rs1,200 billion, while the trade deficit would be at $20 billion.
He suggested that in order to boost the economic growth the government should focus on enhancing three ratios, the tax-to-GDP, saving-to-GDP and investment to GDP.
He said that during the last four years the government had claimed to achieve the best revenue figures. “In fact it declined,” he added. He also criticised the role of the banking sector and said that huge spreads are also causing inflation. Three previous State Bank governors had identified that the spreads should be reduced, he said.
In his proposals, he said, the government should bring all taxable incomes into the net. No tax amnesty should be granted and misuse of exemption given on remittances should be checked, he added.
He also urged the tax rate for the banking sector to be enhanced to 45 percent and the general sales tax rate should be brought down.
In his presentation, Shabbar Zaidi, leading chartered accountant, proposed a reduction of four percent in the sales tax rate to 12 percent to reduce prices and burden on the common man.
He suggested reduction in maximum duty rate on imports to 10 percent with a minimum of five percent and curb under-invoicing in Afghan Transit Trade and eliminate the culture of SRO (Statutory Regulatory Order).
He strongly recommended abolition of petroleum levy and improve industry.
Zaidi also sought reduction in the discount rate from 12 percent to 10 percent, which would reduce the cost of doing business and the government’s cost of borrowing.
He also proposed reduction in the federal government expenditure.