Falling oil prices have shaved off import bill, helping reduce current account deficit, but also eroding tax revenue
It has become increasingly obvious that international lenders have stopped taking seriously the government’s rhetoric over the improved state of the economy. While one should acknowledge that the economic landscape has improved somewhat — aided by the IMF’s Extended Fund Facility, falling oil prices and the one-off spectrum auction — the time to gloat over achievements has passed. In the IMF’s latest approval of the $504.8-million loan, the lender was less than impressed with the progress Pakistan had made in the period after the previous review. This follows reports of the IMF being concerned over the implementation of structural reforms, especially as they relate to bringing down the budget deficit, reducing government borrowing and increasing tax revenue.
The PML-N came into power enjoying a reputation of having the ability to take the economy forward. Twenty-eight months later, it has been able to increase foreign exchange reserves, but on the back of heavy borrowing at high interest rates. Falling oil prices have shaved off the import bill, helping reduce the current account deficit, but also eroding the tax revenue. To counter this, GST has been increased to unprecedented levels. But reforming the Federal Board of Revenue and implementing structural reforms in the power sector are steps yet to be undertaken. Strategies have been short term and hence, their benefits will be short-lived. In addition, economists have criticised the alleged figure-fudging tactics that have enabled understating of the budget deficit. The IMF has granted waivers, signifying that there was much room for improvement — especially when it came to attempts to bring down the budget deficit and restrict borrowing. The government’s current strategy is to borrow to aid spending patterns, with hardly any attempt being made to increase revenue directly. When this has been tried, outcry from business groups has ensued. The government hates protests and lobby groups hate paying more taxes. At the end of the day, it is the honest taxpayers who suffer as they face higher tax rates and reduced purchasing power.
Published in The Express Tribune, October 2nd, 2015.
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