ECONOMIC STUDY 2020-21: Focus on stimulating growth, fighting inflation: Tarin – Journal
At the launch of Economic Survey 2020-21, the minister said the IMF said electricity tariffs and income tax would not be increased
Next year’s budget aims to support the poor and create two million jobs
FBR will no longer issue notices; voluntary non-declarants will be sent to prison
Revenue collection will be increased by 26% to meet IMF target of 5.9tr rupees for next year
The electricity sector, public entities designated as the biggest challenge for the government, the country
China urged to include Pakistan in industrial sunset process
ISLAMABAD: As the country’s economy posted a widespread recovery from the low base of a historically bad year, Finance Minister Shaukat Tarin on Thursday pledged to roll out a budget for next year that would go from stabilization to growth, fight inflation and support the poor.
At the launch of Economic Survey 2020-21, the minister said the International Monetary Fund had been informed of the “red lines”. “We told the IMF that electricity tariffs and personal income taxes will not be increased because we don’t want to impose more burdens on the poor or the working class. But we will increase revenue collection by almost 26% to meet the IMF’s target of 5.9 trillion rupees for next year, compared to over 4.7 tr rupees this year, ”he said.
“No Sir, we can no longer carry out repeated tariff increases, nor weigh down more employees. We told them [IMF] this is the prime minister’s red line, ”he said, adding that talks with the IMF were continuing but there was no agreement. He said the common goal of both sides was to have sustainable growth but to have different paths in mind to achieve it.
In addition to the tariff increase, the IMF was demanding 150 billion rupees in additional tax revenue on top of the existing 113 billion rupees. “It is not justified,” he said, adding that further tariff increases would destroy the industry and impose an unbearable burden on the poor due to its cascading effect on inflation. “We will approach the electricity sector with alternative means and the circular debt accumulation this year will be 150 billion rupees lower than last year.”
Mr Tarin agreed that the electricity sector was the biggest challenge not only for the government but also for the country. He said the IMF had received a 5.9tr rupee income plan for next year, but it would take time to reach an agreement.
An official on the sidelines said the 5.9tr rupee revenue plan was unacceptable to the IMF, which considered some of the revenue streams, most of which claimed to be backed by administrative measures, were unbankable and had failed. in the past.
The finance minister said the broadening of the revenue base would be visible next year, which would be achieved through the use of technology and third-party audits and eradicating harassment.
The Federal Board of Revenue (FBR) would no longer issue an advisory, but instead there would be third-party risk-based audits of 3-4% of income and deliberate non-filers and under-filers. would be punished, he said. “Voluntary non-filers would immediately be sent to jail because the government wanted to create a deterrent effect on tax evasion.”
In the longer term, he added, there would only be two taxes – on income and on consumption – because he wanted to introduce progressive taxation and that withholding and tax on turnover would be phased out.
Mr Tarin declined to comment on the future direction of the State Bank’s key rate despite criticizing the past rate of 13.25%, but said he shared his view that the policy rate should factor in core inflation instead of headline inflation and hopefully they would consider that. He said food inflation had nothing to do with the SBP discount rate and was more about demand and supply and administrative issues.
The minister said besides the power sector, state-run entities are another challenge and drain on public finances that will be addressed in the coming fiscal year. He said 15 of the 85 most loss-making entities would be handed over to a board of directors within the Privatization Commission comprising the most qualified people who would overthrow them and sell 26 pc of the shares.
Mr Tarin said that in order to increase inflows of foreign dollars, the budget would ensure measures to increase exports, as record remittances of around $ 29 billion might not be sustainable unless new ones. innovations are introduced.
He said the focus of the budget would remain on the construction sector.
He said China was urged to make Pakistan part of its industrial sunset process under which it outsourced 85 million jobs to some African countries using the CPEC effectively. “We offered to provide all kinds of incentives for Chinese industries to locate in Pakistan’s special economic zones for export. Unless we do, how are we going to make payments for debt and investments. “
In addition, another investment of $ 7 billion to $ 9 billion would come in the form of the ML-1 rail project.
The minister said that maximum incentives were provided in the budget to increase exports on the recommendations of the ministries of trade and industry, in addition to making special offers to increase exports of information technology by 40 billion. dollars in 10 years.
Speaking of the current year’s interim economic results, Tarin said the GDP growth rate of 3.94% was a success of the government’s economic and cautious foreclosure policies and all targets had been exceeded. Despite various challenges, the economy was gradually moving on a more inclusive and sustainable growth path through various measures and achievements during the year, he added.
The minister said the economy rebounded strongly from the impact of last year’s Covid-19 and a negative performance of 0.47 percent and posted growth of 3.94 percent this year even though the The target was 2.1 percent and that international agencies predicted even lower growth. He said growth was supported by a nearly 9% jump in large-scale manufacturing due to subsidized electricity and gas tariffs and a 2.77% growth in agriculture after four harvests. exceptional out of five.
The minister said Pakistan has made tangible progress on the Financial Action Task Force’s action plan and expressed hope that the country will get relief in the upcoming review as the relevant committees have demonstrated. their satisfaction, which also led Amazon to put Pakistan on its list of sellers.
He said he had targeted next year’s budget to create two million jobs, which was essential to absorb 60% of the population of young people aged 25 to 30. Before Covid-19, the labor force was 55.74 million, which fell to 35.04 million, indicating that people lost their jobs or were unable to work. But the number fell to 52.56 million until October 2020 as the economy experienced a V-shaped recovery.
The finance minister also hinted at a major restructuring of the country’s financial sector to expand the access of small and medium-sized enterprises (SMEs) and low-income people to credit. In addition, he said, regional banks will be created to support the geographic expansion of credit and support SMEs, as the current banking sector credit was heavily skewed in favor of large cities.
All of the country’s credit is used in nine major cities while deposits come from across the country. Mr Tarin said the financial sector’s contribution to GDP was only 33% despite its solid foundation, compared to 50% in Bangladesh and 250% in China.
Posted in Dawn, le 11 June 2021