ISLAMABAD - The government should switch from a policy of stabilisation to revival of the economy and to take fiscal and other measures to raise GDP growth rate to 5.5 percent in the upcoming financial year 2015-16.

“The fiscal year 2015-16 will be the turning point, as the government in first two years engaged in the process of stabilising the economy and it achieved some successes. Now, the time has come to switch from a policy of stabilisation to revival of the economy”, said Dr. Hafiz Pasha, former Finance Minister/ Managing Director Institute for Policy Reforms while releasing Budget Strategy Paper for 2015-16.  

“The people have waited for the last seven years for a return to buoyancy of the economy. During this period, unemployment and poverty have increased. The time has come for revival of the economy. Fortunately, the environment, both external an internal, has become more conducive for taking the economy to a higher growth trajectory”, he said and added that with a certificate of good health from the IMF, following the build up to foreign exchange reserves to almost $13 billion and the fall in rate of inflation to below 5pc, the government is in a position to adopt a policy of revival. A combination of policies will increase growth. These include fiscal stimuli, tax reforms, an expansionary monetary policy, and a competitive trade policy.

The IPR suggested that Annual Plan 2015-16 must target for a growth rate of about 5.5 percent for next fiscal year. “The 2015-16 budget ought to be a ‘tax free’ budget. No tax rates should be enhanced unlike the last two years. FBR should focus on broadening the tax base (details are given later) and on improvements in tax administration”, an independent and non-partisan think-tank demanded of the government in its proposals.

With regard to broadening the direct tax base, Dr Pasha said there is need to focus on companies also along with the number of individuals filing returns. According to the latest Tax Directory, 24186 companies have filed returns. This is only 40pc of the number of companies registered (62,000) with the SECP. Therefore, a drive should be launched to induce corporate entities to file returns or face heavy penalties, he added.

The former Finance Minister also asked to bring down the corporate income tax rate to 30 percent in one go in 2015-16 from current rate of 33 percent to attract investment in the country.

Talking about the Chinese investment worth of $46 billion, Dr Pasha said that it is essential that about Rs 200 to Rs 250 billion be allocated for CPEC projects in 2014-15 in the Federal PSDP. Therefore, the size of the Public Sector Development Programme should enhance by Rs 500 billion to Rs 1425 billion for the next fiscal year. On the direction of the International Monetary Fund (IMF), Pakistan had reduced the PSDP volume by Rs 300 billion to Rs 925 billion from the budgetary target of Rs 1225 billion, he added.

The IPR recommended the government to keep the budget deficit target at 6.5 percent of the GDP for the next financial year, which it estimates to remain at 5.5 percent of the GDP by the end of present fiscal year.

Regarding monetary policy, MD IPR said that policy rate of the SBP can be brought down from 8 percent to 7 percent and export concessionary finance made available at 5 percent. Further, government borrowing from commercial banks should be limited to 2.5 percent of the GDP, so as to enable a doubling of credit to the private sector.

With respect to trade policy, he said Pakistan has not made full use of the GSP plus scheme. This is because of an overvalued rupee exchange rate. In recent months, exporting countries have been competing to reduce the value of their currency in a tight global market. On the other hand, Pakistani exporters have suffered because of the high value of the rupee. This has resulted also in increase in imports. IPR recommends a reduction by 10pc in the value of the rupee.

Earlier, speaking on the occasion, Humayun Akhtar Khan, Chairman IPR stated that weak economic performance of recent years had increased the burden on the people. It is important to look at the economy’s growth potential rather than focus on the limited criteria of reduced fiscal deficit and increase in forex reserves. High cost external borrowings have increased foreign reserves. It is moot if such levels of indebtedness are sustainable for the economy. Before long, debt servicing will begin, which will add significantly to government expenditure and to fiscal deficit. Fiscal deficit would increase also if government settles outstanding circular debt, which has accumulated to over Rs500 billion. There is weak performance all around. Government has been unable to improve tax collection. Exports and large-scale manufacturing have been sluggish in the face of an overvalued rupee and continued loadshedding. Government’s total focus seems to be with meeting fiscal standards set by IMF with scant regard for citizen welfare.

Dr. Pasha stated that government’s focus on stabilisation under the IMF programme comes at the cost of growth of the economy. Unemployment and poverty have both increased in the last six years.

IPR takes issue also with the quality of stabilisation and the measures taken to achieve it. Reduction in development expenditure, increase in indirect taxes, high cost external debt and increasing circular debt have depressed growth and added to the difficulties of the people. It is time for government to take measures to revive the economy.