Economic revival : Dr Bengali proposes 3-pronged agenda – Pakistan Daily Times

Economic revival : Dr Bengali proposes 3-pronged agenda

Staff Report

ISLAMABAD: Renowned Independent Economist Dr Kaiser Bengali here on Saturday proposed the federal government three-pronged agenda for sustained economic revival seeking structural changes to overcome weaknesses in the economy.

He suggested the federal government to reduce size of the budget deficit, stop foreign exchange drain by bridging the rupee and dollar gap and promote industrialisation by reducing general sales tax from 17 percent to 5.0 percent.

Speaking at a function organised by Social Policy and Development Centre (SPDC), chaired by its chairman Saeed Qureshi, Dr Bengali said that during the last 30 years Pakistan has been facing economic crisis situation and all this is due to the structural problems of the economy. This crisis would not be resolved through paperwork nor steroid shots but structural weaknesses would need to be removed.

He mentioned that agenda for sustained economic revival is basically for improving the macroeconomic environment of Pakistan to attract quality investment within and from outside the country.

He suggested that the budget deficit needs to be reduced through direct taxes like imposing agriculture income tax, tax on trade and services sector. He said that at present local industries are bearing the burden on taxes to the tune of 30 percent. Reduce the non-debt component of non-development expenditure by keeping these expenditure constant in normal terms for three to five years, consequently, the reduced need for government borrowing will tend to reduce the debt in medium to long-term, switching resources thus saved to finance development projects.

He was of the view that bridging the dollar gap requires curbing furnace oil and diesel imports through utilising coal resources of Sindh for power generation and shifting goods transport from trucks to rail. He suggested to raise gas prices three to four times and using the surplus to subsidise power supply to manufacturing sector units located in designated areas, creating holding company comprising Pakistan Railways and National Logistics Cell, for long transportation of goods through rail and short through trucks. He said that in the past undue advantage has been given to road transport users and Pakistan Railways is a story of neglect as the profitable business has been transferred to NLC and loss-making operations are with Pakistan Railways and is being formed to become profitable.

He mentioned that exports can be increased through expanding the supply base like industry. He said that Pakistan’s reliance is on cotton and textile exports and if we exclude this, our export base is very narrow so there is need to diversify the export base.

Tax burden on manufacturing should be reduced by lowering the GST rate from 17 percent to 5.0 percent with no refund. He mentioned that import dues are low and local tax burden on industries has made local industries uncompetitive against imports thus leaving no level-playing field.

He suggested the government to reduce profitability in alternative ‘soft’ sector by de-mutualising of the stock exchanges, and proper imposition of capital gains tax. He said at present only 12 stock market players are managing the stock markets according to their own sweet will.

He said that goods are being declared at import stage at very low price and massive under-invoicing is being committed, to curb this he suggested that First Right of Purchase be introduced at import stage to curb under-invoicing. Similarly, he also suggested the government to introduce Right of First Purchase in land and property transactions as these are being done on very low declared price against the market price.

Debt servicing can’t be denied and the government should reduce the non-development budget and reduce the volume of subsidies for reduction in budget deficit. Savings from this should be invested in infrastructure as the public investment has come down from 17 percent to 2.0 percent right now.

In this regard, he said the reducing direct taxes burden on manufacturing making local industries competitive against imports would result in increased exports and job creation.

He said that at present against $1 exports of Pakistan, imports of the country are at $1.88. Pakistan would not be able to finance this gap through IMF loan or Coalition Support Fund arrears realisation from United States.

He also said that selling public sector entities to foreign buyers would increase foreign exchange outflows and worsen the balance of payment crisis as this would increase repatriation of profits and investment in subsequent years. He suggested that public sector entities should be sold to local buyers or their management control be privatised so as to improve the efficiency of these sick entities. He also mentioned that foreign investor interested in land coming in privatisation be discouraged as the examples of Zeal Pak and Pak Land Cement industries is available.

He was also of the view that the idea of making private sector as engine of growth has failed and the government should again come forward and initiate hi-tech industries in collaboration of the private sector with private management for promotion of industrialisation.

He mentioned that selling of public sector entities to foreign buyers after 2002 have increased pressure on the rupee due to the repatriation of profits and investment. This privatisation has not helped Pakistan as the budget deficit is still high and balance of payments difficulties have increased due to it.

Dr Bengali warned that US economy is reviving and resultantly the European Union economy will improve and oil consumption in these economies will increase, resultantly the oil prices are to increase in future creating more difficulties for net oil importing countries.

Dr Bengali was of the view that project launched for 6,600 megawatts coal-fired power plants is reportedly being run on imported coal. He said this would put additional burden on foreign exchange reserves and create balance of payments difficulties. He informed that Thar coal has been declared as world class by German and Korean experts and this can be used in these projects in Sindh.

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