ISLAMABAD: Criticising the government’s economic policies, a think-tank led by former finance minister Dr Hafiz Pasha on Thursday blamed the government for depriving people of the benefit of falling international commodity prices, subsidising international consumers and artificial overvaluation of the currency.

In his assessment of the PML-N government’s performance in the first half of the current fiscal year on behalf of the Institute of Policy Reforms (IPR), Mr Pasha termed the economic policies of the government as “bizarre” and forecast a revenue crisis in the making.

Mr Pasha was a member of Nawaz Sharif cabinet during 1997-1999.

Dr Hafiz Pasha blames the PML-N govt for depriving people of the benefit of falling international commodity prices

He found it odd that the government was providing substantial subsidies on export of wheat to benefit international consumers instead of benefiting the people of Pakistan.

He alleged that the government had withheld 15 per cent cut in petroleum products prices in line with international prices, blocking 25 per cent reduction in electricity prices and retaining 20 per cent reduction in wheat prices to consumers. He said the government was not taking advantage of a rare low global commodity price phenomenon.

Dr Pasha said the government was artificially maintaining the rupee-dollar parity, resulting in adverse impact on the country’s exports, adding the rupee was “overvalued by 18 per cent against the US dollar”. He said the decision has made the exports uncompetitive and referred to 15 per cent appreciation of rupee against euro which he said had negated the benefits of GSP plus scheme.

He also criticised the International Monetary Fund for its partial diagnosis of the economy and questioned the quality of technical missions of the IMF to Pakistan.

He specifically mentioned that the price of wheat flour should have been reduced by Rs9 per kg in domestic market, POL prices by Rs10 per litre and electricity prices by 25 per cent and in fact these decisions would have earned more popularity for the government among the masses.

Dr Pasha was very critical of the government decision to introduce four mini-budgets and said it would have net revenue impact of Rs160 billion and yet the revenue target would be missed by a margin.

He said by increasing GST rate on high speed diesel to an unprecedented 37 per cent level, the government would rather raise Rs20 billion in additional revenue contrary to Finance Minister Ishaq Dar’s claim that the recent oil price adjustment was “revenue neutral”.

He criticised the government’s policy of resorting to heavy foreign borrowings and said net foreign borrowings in first half of the fiscal year remained $2.5 billion. He said $1 billion of it was used for consumption purposes instead of spending on development.

The former finance minister raised questions over public finances by saying that the government was understating expenditures to show good fiscal performance. He said first half year’s budget deficit of 2.2 per cent of Gross Domestic Product was achieved by delaying payments on account of debt servicing.

He said the federal development budget was cut by 15 per cent and provincial development budgets by 30 per cent in the first half.

Dr Pasha said the IMF was pressurising the government to retain the cut in the second half of the year as well.

His assessment was that the budget deficit by end of fiscal year would be six per cent of GDP or Rs1.7 trillion — far higher than the IMF given target of 4.9 per cent.

Dr Pasha said the FBR was about to face a revenue crisis as it would not be able to put together more than Rs2.6 trillion in revenues as against the original target of Rs2.810 trillion and lamented that the government did not realise that heavy taxation was always counterproductive.

Dr Pasha said that the economy would also fall well short of its target growth rate of 5.1 per cent and estimated final growth rate at 4-4.2 per cent of GDP as also predicted by the IMF.

His argument was that all determinants of growth such as agriculture and industrial production were sluggish and below the growth rate of the last fiscal year.

Published in Dawn, March 6th, 2015

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