Painful pinch of economic downtrend

ByAsrar Raouf

Former Civil Servent


January 7, 2023

Painful pinch of economic downtrend

Asrar Raouf describes the
consistent downward trend of the economy

Pakistan is experiencing an unprecedented & Painful pinch of economic downtrend downward trend that has not shown any signs Pakistan is experiencing an unprecedented & Painful pinch of economic downtrend downward trend that has not shown any signs of abating. despite changes brought about in the governing apparatus. It is been many months since the coalition government took over but it has also failed to stem the rot with the result that the incumbent economic policy makers are now trying to take some radical administrative measure to gain some control on financial hemorrhage. The recent blue print of the measures to be adopted is the mirror image of the previous measures adopted by the former PM Nawaz Sharif during his last tenure of office though its implementation was limited to the premises of Islamabad. He was advised against the initiative for the simple reason that it ran contrary to the socio-economic mores of the country but he persisted in its implementation and as was predicted it failed when the trading class stood up against it in protest and refused to follow the government policies.

Now, feeling itself besieged, the coalition government has unveiled a plan aimed at saving energy by means of restricting commercial activities as well as social interplay during the marriage ceremonials. The government is trying to justify these measures under the pretext to reduce the unprecedented circular debt in the energy sector. In this context it is reported that circular debt of the power sector that stood at Rs.2.253 trillion by end of September last year had now reached Rs.2.437 trillion showing an increase of Rs.185 billion. The dispensation plans to restrict the timings of wedding halls and markets across the country and limit it to 10pm and 8:30pm respectively. It is pointed out that these measures will change the overall lifestyle and habit pattern of the Pakistani people and save the exchequer Rs.60 billion.

While laying out these measures it was mentioned that that the production of fans run on electricity will be halted by July as inefficient fans use around 120-130 watts of electricity whereas across the globe, fans are available that use 60-80 watts. It was also mentioned that after 1 February 2023 incandescent bulbs would not be manufactured and additional taxes will be imposed on the ones that were imported and it was added that an additional Rs.22 billion could be saved by doing this. All the government buildings and officers will consume efficient energy under the plan with the aim to reduce energy consumption by 30 per cent. These measures will also include buildings under the use of the judiciary in all cities and towns. Moreover, it would be ensured that all housing societies will follow these restrictions without prejudice.

It has also been decided to make the use of conical geysers mandatory within a year. These geysers use less gas and this way a saving of Rs.92 billion. In addition the government had decided to use street lights alternatively which would save Rs.4 billion. Furthermore, the government would be introducing electric motorcycles this year and as Pakistan is using oil worth $3 billion annually, these e-bikes will be slightly expensive but government will provide financing and the costs will hopefully be covered within a year. The government has directed the formation of a committee to look into the work-from-home policy and the process will be completed within 8 to 10 days. The government is also bringing a building code for the construction sector as the maintenance cost of cement, iron and glass is very high. The government has pointed out that the authorities had discussed the conservation plan with traders from across the country and that there is a consensus on it.

Despite the intense economic crunch the polarisation in the country is equally intense as these measures were immediately contested and rejected by the traders’ body of Punjab. Moreover, the Punjab government rejected the energy policy put forward by the federation as the Khyber Pakhtunkhwa government was undecided about its implementation. The traders emphasised that shops and restaurants would not close before 10pm and 11pm, respectively. They insisted that conserving energy by putting the brakes on the economy is not a wise decision and proposed instead that conserving energy by cutting down on the use of air conditioners and heaters in government buildings and restricting the fuel and power privileges for bureaucrats and government officials. The Khyber Pakhtunkhwa government also said that the provincial government was not taken on board when drafting the policy and since it was not taken on board therefore it will stick to the measures it is already taking to conserve energy.

The government is also facing the uphill task of collecting the required revenues as the FBR faces a revenue shortfall of Rs.225 billion for the outgoing month of December 2022. It was reported that the FBR has collected only Rs.740 billion against the desired target of Rs.965 billion. This crucial shortfall will make it hard for the government to convince the IMF to revive the stalled IMF programme without taking additional and substantial taxation measures such as a mini-budget for the current fiscal year. As a desperate measure the government is contemplating options for the imposition of Flood Levy in the range of 1 to 3 per cent to fetch Rs.60 billion. Other taxation measures aimed at increasing level of direct taxation are on the anvil and have also identified only those areas that earned high profits because across-the-board taxation during the time of prevalent stagflation might further erode already sluggish economic activities.

It is getting clearer by the day that the FBR may not be able to collect the target amount of Rs.7.47 trillion as it is pointed out that the imports compression and lingering litigation in higher judiciary have resulted in lowering the revenue collection target. The FBR has so far collected Rs.3.428 trillion in the first half period of the current fiscal year against the desired target of Rs.3.673 trillion though it collected Rs.2.9 trillion in the same period of the last financial year 2021-22 that is considered an increase of 17 per cent but this increase is not enough to meet the projected target. The details point out that the FBR collected Rs.740 billion for the month of December 2022 against Rs.599 billion in the same month last year, showing an impressive growth of almost 24% as compared to the same month last year.

It is pointed out that the performance of FBR is shown to be better in respect of direct taxes whose collection continues to grow at a robust pace showing a growth of 66% during December 2022 compared to December 2021, a clear indicator of the policy of shifting the tax burden on the wealthy and affluent. Direct taxes collection for the first six months has also registered an unprecedented growth of 49%. This was achieved despite the fact that certain policy interventions having a revenue impact of Rs.250 billion introduced through Finance Act 2022 could not be implemented as these are subjudice in the courts. This level of collection may however be viewed in the backdrop that the FBR has also issued refunds of Rs.176 billion during the first half of the current financial year as against Rs.149 billion during the corresponding period of last year. TW


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