“Pakistan needs to raise $12 billion to avert balance of payments crisis”

ISLAMABAD: Pakistan should raise $12 billion until June 2022 to avoid a balance of payments (BoP) crisis, former finance minister Dr. Hafeez A Pasha said on Friday, proposing a plan to support the economy in ruins.

“Pakistan needs a comprehensive reform strategy to revive the IMF program, as the former Prime Minister’s relief package to provide fuel and electricity subsidies at an estimated cost of 400 billion rupees, mainly for the rich, will have to be canceled and the country must also provide a well-targeted allocation of subsidies to the poorest people,” Dr. Pasha told a conference organized by SDPI.

The roundtable titled “Immediate Economic Priorities for Pakistan” was set up in collaboration with the Fredrich Ebert Stiftung from Germany.

Putting his weight behind a cut in excise taxes on food staples such as ghee/cooking oil, sugar, spices, vegetables and tea, Dr Pasha said the IMF should go along with it because there was good news that the Fund offers a human face.

He said a comprehensive reform package could help revive the IMF program, while progressive taxation proposals could bring an additional 2 trillion rupees a year to the national pot.

The former finance minister suggested the imposition of a farm income tax and shared his estimates, saying the net income of 40,000 to 50,000 well-to-do farmers amounted to Rs 1.8 trillion a year.

The agricultural sector, he said, contributed only Rs 2 billion in agricultural income tax.

He proposed to the government to abolish the income tax on working people and said that the wealthiest urban class with net rental income from luxurious canal houses earned 460 billion rupees, but they did not contributed only 6 billion rupees through rental income. “All income and assets of civilian and military elites are exempt and research carried out as part of the UNDP report suggests that these elites provide Rs 4.2 trillion through exemptions on their assets and income,” he said. he declared, adding, “For the love of God, the country cannot function with such an elite capture”.

He said the minimum taxable ceiling should be increased from 0.6 million rupees to 1 million.

“The top rate of 35% income tax is charged at 75 million rupees per annum which is 300 times higher than the per capita income in Pakistan, while in India the top rate of 30% is deducted, which is only 10 times Indian per capita income. Income.”

Dr Pasha said that when he proposed a tax reform package to the previous Prime Minister a few months ago last fiscal year, the former Prime Minister used the word ‘good’ 42 times in his presentation; however, none of his tax proposals made it into the latest budget for 2021-22.

On the indirect tax side, Dr Pasha said there was a need to merge the GST on goods and services and come up with a single value added tax.

He explained that the scale of the current crisis was much greater. This can easily be gauged by the fact that the current account deficit which stood at $19 billion in 2017-18 was $12.3 billion in the first eight months and is heading towards $18-19 billion. dollars for this exercise, added the economist.

External debt service, he said, stood at $4-5 billion a year in 2017-18 and external financing needs were estimated at $23 billion a year when the country was hit by a balance of payments crisis last time in 2017-2018.

He said external debt service would climb to $16-17 billion in the next fiscal year as overall external debt and liabilities rose sharply to $132 billion, while needs Gross external financing would reach 32 billion dollars. “Pakistan managed to secure $18 billion in external financing in the first nine months, mainly through $2.8 billion in SDRs from the IMF as a gift, $3 billion from Saudi Arabia and other creditors, but now Islamabad is expected to raise $12 billion in three months to June 2022,” he added. He said foreign exchange reserves held by the State Bank of Pakistan (SBP) have been depleted by more than $5.5 billion in the past six weeks and such a rate of decline has never been seen before.

Responding to a question from The News International, Dr Pasha said he did not want to cause panic and hoped things would be sorted out with the help of the IMF and other bilateral friends.

“The dollars are running away and there are indications on every side and there is also a risk of parked money in Roshal digital accounts because on Pakistani bonds there was an average yield of 12 to 14 %.”

On another question regarding IMF debt rescheduling, Dr. Pasha said that such a facility was offered to countries facing technical default situations.

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Elaine R. Knight