‘Pakistan must raise $12bn to dodge balance of payment crisis’

ISLAMABAD: Pakistan would have to raise $12 billion till June 2022 to avert a balance of payment (BoP) crisis, said Dr Hafeez A Pasha, former finance minister, on Friday, proposing a plan to bolster the crumbling economy.

“Pakistan requires a comprehensive reform strategy for reviving IMF programme as the former PM’s Relief Package for providing fuel and electricity subsidy with an estimated cost of Rs400 billion, mainly for the rich, will have to be reversed and the country also needs to come up with a well-targeted provision of subsidy to the poorest people,” said Dr Pasha keynoting a conference organised by SDPI.

The round table titled “Immediate Economic Priorities for Pakistan” was set up in collaboration with Germany’s Fredrich Ebert Stiftung.

Putting his weight behind a reduction in indirect taxes on basic food items such as ghee/cooking oil, sugar, spices, vegetable, and tea, Dr Pasha said the IMF should accept it because there was good news that the Fund is coming up with a human face.

He said a comprehensive reform package could help revive the IMF programme, while progressive taxation proposals could fetch additional Rs2,000 billion per annum into national kitty.

The former finance minister suggested imposition of Agriculture Income Tax and shared his estimates, arguing that net income of affluent 40,000 to 50,000 farmers stood at Rs1800 billion/annum.

The farm sector, he said, was just contributing only Rs2 billion into agriculture income tax.

He proposed the government to slap Asset Income Tax and stated that the richest urban class with net rental income through one kanal luxurious houses earned Rs460 billion but they were contributing just Rs6 billion through rental income. “All civil and military elites’ incomes and assets are exempted and research done through UNDP report suggests that these elites are providing Rs4,200 billion through exemption on their assets and income,” he said adding, “For God’s sake, the country cannot run with such elite capture”.

He said the minimum taxable ceiling should be increased from Rs0.6 million to 1 million.

“The highest rate of 35 percent income tax is charged at Rs75 million income annually, which is 300 times higher than the per capita income in Pakistan, while in India maximum 30 percent rate is deducted, which is only 10 times higher than Indian per capita income.”

Dr Pasha said when he had proposed a tax reform package before the previous Prime Minister some months back in the last fiscal year, the former premier used the word ‘good’ 42 times in his presentation; however, none of his tax proposals was made part of the last budget for 2021-22.

On the indirect taxes side, Dr Pasha said there was a need to merge GST on goods and services and come up with a single Value Added Tax.

He explained that the magnitude of the prevailing crisis was much bigger. This can easily be gauged by the fact that the current account deficit that stood at $19 billion in 2017-18 was at $12.3 billion in the first eight months and is heading towards $18 to $19 billion for this fiscal year, the economist added.

The external debt servicing, he said, stood at $4 to $5 billion/annum in 2017-18 and external financing requirements were estimated at $23 billion/annum when the country was struck by a balance of payment crisis last time in 2017-18.

He said the external debt servicing would climb to $16-17 billion next fiscal year because overall, foreign debt and liabilities sharply rose to $132 billion, while gross external financing requirement would be touching $32 billion. “Pakistan managed to secure external financing of $18 billion in the first nine months mainly through $2.8 billion SDRs from the IMF as a gift, $3 billion from Saudi Arabia and other creditors but now Islamabad would have to raise $12 billion in three months till June 2022,” he added. He said that the foreign exchange reserves held by State Bank of Pakistan (SBP) got depleted by over $5.5 billion in the last six weeks and such a pace of decline was never seen before.

Replying to a question by The News International, Dr Pasha said he did not want to create panic and hoped that things would be worked out with the help of the IMF and other bilateral friends.

“The dollars are running away and there are indications on every side and there is also risk involved in the money parked in Roshal Digital Accounts because on Pakistani bonds there was an average yield of 12 to 14 percent.”

To another question regarding debt rescheduling from the IMF, Dr Pasha said that such a facility was provided to the countries facing technical default-like situations.