Sunday, May 25, 2008
By Hina Mahgul Rind
KARACHI: At a time when Pakistan is facing immense pressure from economic imbalances, the country needs sustained macroeconomic stability, financial discipline, and consistent and transparent policies.
Each government makes impractical promises to the nation, which are not fulfilled. Experts believe that the present government has also made such promises, which it cannot fulfill completely. Pakistan is facing severe problems from petty and major issues, with no solution in sight to provide relief to the people.
The Fiscal Budget 2008-09 is expected in the upcoming month amid a depressing economic situation, where inflation is sky rocketing and the people are finding it difficult to make ends meet.
Shahid Hassan Siddiqui, an economist, said that in the upcoming budget the government should make efforts to push the economic growth process forward. The first step the government should take to generate employment is that banks should be assigned targets for financing micro schemes. Banks should also be given targets for advancing cottage industries for women. This will enhance the income of the family and will go a long way in reducing poverty.
He said that consumer financing schemes, except for housing schemes, should be banned. The SBP should give targets to banks for loans to be given to small farmers, who should be provided water, technical know-how, fertilisers and pesticides. He said that most importantly, the minimum wage from Ist July should be Rs8,500. General Sales Tax, which is a major contributor to high prices, should be reduced from 15 to 5 per cent, he added.
The government has increased prices of petrol by Rs15 per liter. From 1st July all taxes on petrol should be withdrawn and the price fixation formula for petrol should also be revised. This will result in the price reduction of petrol by Rs20 per liter. According to the law, all sectors, be it agriculture, real estate, stocks or any other, should be taxed. Any person whose yearly income is Rs400,000 or more should be pay income tax.
He further added that the Public Sector Development Programme (PSDP) should be reduced. As at present, the government does not have enough money for development expenditure, and 50 per cent of the PSDP is not utilised properly. The government should also, as a priority, reduce the defence budget. He noted that to provide short-term relief to the people, the prime minister has announced a cash grant to 4 million families. However, the process should be transparent and only the needy should be entertained. The embezzlement of funds should also be prevented. The Fiscal Budget is expected on June 7, 2008. As far as the NFC award is concerned, it will be the same formula, since the government has no time left to debate about the issue, he added.
Ovais Siddiqui, head of International Sales at First Capital Equities Limited, said that the government should announce a package for the development of the agriculture sector. To stimulate production and investment, an economic revival package should also be announced for the renewal of the industries sector. He said that though the government’s trade deficit has widened and it is short of money, the PSDP should not be cut down. Funds should be allocated to various projects on a priority basis.
He added that the government should not impose Capital Gains Tax (CGT), as it is not in favour of the stock market. This can have a further negative impact on the stock market, whose value is already down more than 16 per cent. If the government wants to attract more portfolio investment and GDR, this tax should be avoided. More technical and vocational training facilities should be provided. In this way unemployed people will get the chance to enhance their skills and become able to earn a reasonable income. With a view to reducing unemployment of the educated, self-employment schemes should be encouraged. He added that besides this, a number of fiscal and monetary measures should also be taken to attract industrialists, and particularly foreign investment.
An official from the Ministry of Finance said that the Government of Pakistan is committed to introducing multi-sectoral poverty-reduction measures through broadening its service-delivery network and expanded educational network. This will ensure quality education for all and widen employment opportunities in urban and rural areas. Other initiatives, which public representatives in a democratic order represent, should also be taken.
The official added that in every part of the globe, taxation is the only instrument to earn revenue and mobilise resources, which finally goes into public development projects to ensure maximum happiness for the maximum number of people. Considering petroleum products to be an area with scaled-down taxation is a significant issue that could be best decided by parliament, since it is parliament that reflects the people’s aspirations. How to bring down inflation as well as fuel prices should be considered at an appropriate forum, and submitted before the elected representatives for policy decision, keeping in view the overall economic conditions of the country, he stated.
The PSDP 2007-08 laid due emphasis on maintaining the momentum of growth, realisation of core MTDF objectives such as reducing poverty, achieving the MDGs, ensuring equitable distribution of development funds across regions and various social groups, empowering women and minimising wastages. PSDP 2008-09 has been formulated with a view to avoiding a thin distribution of resources. The principles that have guided the resource allocation under PSDP are completion of on-going projects, initiation of important new approved projects, initiation of un-approved but crucial projects, implementation of public commitments made by the president and the prime minister, equitable/fair distribution of funds among the provinces and preparation of projects conducive to creating an environment of an informed economy.
He said that the demand for development funds has to be rationalised, keeping in view the total resources available and the financial commitments of the government. The size of the federal development programme, approved by the NEC on recommendations of the Planning Commission during FY2007-08, was Rs335 billion (including foreign loans of Rs32 billion), with an increase of 20 per cent over the size of PSDP 2006-07. Its actual size during FY2008-2009 should be announced shortly.
The Medium Term Development Framework (MTDF) poverty reduction policies further the commitment of increased public sector investment, implementation of second generation reforms agenda and social protection. Achievability of MTDF 2005-10 and MDG targets emphasise further on underpinning economic and pro-poor policy, not only to sustain, but accelerate the ongoing growth momentum within a stable macroeconomic environment. More important issues for the consideration of poverty reduction policy are the challenges of job creation, meeting MDG targets and strengthening the country’s physical infrastructure, to support growth above 7 per cent.
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