New finance managers settling in



May 7, 2022

New finance managers settling in

Asrar Raouf describes the difficult economic situation


The New finance managers settling in have pulled up their socks and have avoided mistakes in the initial period of their tasks that were committed by the previous administration. They did not hesitate to rush to the IMF putting aside the huge rancour associated with taking this decision. They also followed their policy options by deciding to remove the governor State Bank of Pakistan despite his close association with the IMF. Quite obviously the new team must have taken pains to get the IMF agree on this point and that may have taken some convincing. It is also becoming clear that the new government may publicly bring to fore the policies followed by the former SBP governor with a decisive negative tilt. Many politicians associated with economic matters have already started to question the rationale behind many initiatives taken by the former governor.
On his departure, the former governor recalled the initiatives the SBP took during his tenure, such as Covid relief packages which included Rozgar payroll loans and hospital financing, Roshan Digital Account, Raast, a framework to licence digital banks in Pakistan, financial inclusion for women, affordable mortgages for lower-income groups and others. On the other hand PMLN legislators have demanded an inquiry into the $3.6 billion hot foreign money brought in Pakistan during the first year of the governor’s term and they want a forensic audit of the hot foreign money inflows. PPP has also moved a request in the Senate, seeking the formation of a parliamentary committee to determine whether any wrongdoing was done in the case of hot foreign money inflows.
It was also mentioned that despite the governmental fixation of ceiling of 8 per cent the SBP constantly revised the inflation target with the result that in its last monetary policy statement SBP revised upwards its forecast to over 11% clearly working against the principle of containing inflation that, according to the new rules of SBP, is its primary duty. SBP is also criticised for not cracking down on the banks that have been exploiting the federal government and extending loans at rates up to 2.5% over and above the SBP policy rate. In addition to many also question the most expensive NPC debt, dwindling foreign exchange reserves and deeply devalued rupee. Some observers however are of the opinion that the former governor stayed loyal to the IMF remit and that he will go back to his employer and may even be feted by them.
On the revenue front it is reported that the FBR has collected Rs.4.86 trillion in taxes during the first 10 months of current fiscal year, leaving itself with a task to collect another Rs.1.24 trillion in just two months to achieve the revised annual target at an average of Rs.20.4 billion a day. The current collection shows an increase of nearly 29% over the collection made during the same period of previous fiscal year. In absolute terms, the collection was Rs.1.1 trillion more than the previous year. The main issue facing the incumbent government is to strike balance between its political objectives and restoring the health of the economy. The new managers could not increase the prices of petroleum products from 1 May despite an understanding reached between the new economic team and the IMF.
It was also however reported that Finance Minister had assured the Fund that he would completely withdraw the subsidy on petrol from 1 May and would also reduce the subsidy on high-speed diesel by at least half. This is a tough policy option as in order to keep fuel prices at the current level, the government is required to provide Rs.51 billion in subsidy for 1 to 15 May period, which was so far the highest amount for any fortnight since 1 March, when the previous government froze petroleum product prices due to political expediency. Any shortfall against the FBR’s revised target would also make the next year’s target challenging, as the IMF has asked Pakistan to fix the target at around Rs.7 trillion for fiscal year 2022-23.
The New finance managers settling in collection of revenue, as usual, was heavily dependent upon imports that contributed nearly 52% to the total tax collection, which again camouflaged the weaknesses in the domestic sales tax collection that remained negative. The FBR has missed its monthly targets in four out of the past five months. Overall, the FBR collected 64%, or Rs.3.11 trillion, in indirect taxes – general sales tax, customs duty and federal excise duty, which were the three main sources of indirect taxes. Similarly, Rs. 2.5 trillion, or 52%, of the total collection was at the import stage. The FBR collected Rs.1.75 trillion in income tax in the first 10 months of current fiscal year, up by Rs.383 billion or 28% over the same period of previous year. Over Rs.236 billion worth of income tax was collected at the import stage. The share of income tax in total revenue stood at 36%. The total increase in sales tax collection was once again lower than the jump in sales tax receipts at the import stage due to negative growth in domestic sales tax collection.
The FBR collected Rs.596 billion in domestic sales tax compared with Rs.668 billion in the previous year, a reduction of 10.8%. Contrary to that, sales tax collection at the import stage stood at Rs.1.46 trillion in the first 10 months of current fiscal year as against Rs.927 billion in the previous year. There was an increase of Rs.541 billion (or 58%) in sales tax collection at the import stage. The federal excise duty collection amounted to Rs.250 billion, which was higher by Rs.33 billion than the corresponding period of previous year. The New finance managers settling in customs duty collection increased to Rs.792 billion, showing an increase of Rs.197 billion or 33 per cent.
In another development the Prime Minister Shehbaz Sharif has picked his Economic Advisory Council largely comprising rich individuals who may be subjected to the perennial difficulty of changing the economic direction and end protectionist policies and these objectives are clearly at odds for many members of the council. The 22-member body having representation of the government and the private sector is initially planned to meet every week. The EAC has been established to review and formulate economic policies in a more holistic manner, according to the Ministry of Finance. The EAC will advise on short-term macroeconomic stabilisation as well as structural reforms for stable and sustained economic progress, according to the notification.
Among the New finance managers settling in members are former Prime Minister Shahid Khaqan Abbasi, Planning Minister Ahsan Iqbal, Finance Minister Miftah Ismail, former finance minister Saleem Mandviwalla, Information Minister Marriyum Aurangzeb, Minister of State for Finance Ayesha Ghous Pasha and Minister of State for Petroleum Mussadiq Malik. Other members include Mian Monammad Mansha and his nephew Shahzad Salim, Mohammad Ali Tabba who is the owner of the Lucky Cement, Arif Habib, Ijaz Nabi, Former FBR chairman Tariq Pasha (former chairman FBR) Dr. Asim Hussain, banker Atif Bajwa, Faisal Farid, HBL President Aurangzeb Khan, Waqar Malik (MD Fauji Foundation), Salman Ahmed, Rahman Naseem and Musadaq Zulqarnain. TW

Read More

Asrar Raouf is a former civil servant


The writ of international law
The writ of international law
M Ali Siddiqi looks at a crucial...
Resurgence of fascism
Resurgence of fascism
M Ali Siddiqi describes a dangerous...
President Xi Jinping
XI on his way to ruling China for life
M Ali Siddiqi talks about apparent...
Governance and equitable distribution of resources
Governance and equitable distribution of resources
M Ali Siddiqi talks about Governance...
The Need For Pakistan
The Need For Pakistan
M A Siddiqi expresses surprise...
The Presence And Essence Of Pakistaniat
The Presence And Essence Of Pakistaniat
M Ali Siddiqi describes a strong...

Get Newsletters


Subscribe Us