Hafeez’s stance on foreign debt

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In post budget press conference, Prime Minister’s Advisor on Finance Dr. Abdul Hafeez Sheikh defended foreign loans acquisition policy of the government and contradicted the impression of spending them on extravagance in current expenditure. He said that loans from multilateral and bilateral sources are being acquired out of compulsion to retire the foreign debt liability created by previous two governments. Substantiating the rationale behind avoiding levy of new taxes and reduction in the rate of already imposed duties and taxes, Dr. Abdul Hafeez Sheikh described these fiscal measures essential for boosting national output and employment. However, he did refer vaguely to possibility of minibudget by hinting at adjustment in gas price. Finance Advisor admitted that the proposed tax collection target of Rs.4.963 trillion may be difficult to achieve. The contention is correct that fresh foreign loans have to be acquired to clear the debt liabilities of past. The last PML-N government, used the easily applicable recipe of Darnomics to acquire expensive short term commercial loans from bilateral sources to finance the imports of consumers’ goods, mostly luxury ones, instead of spending foreign capital on the import of capital goods such as latest technology machinery and equipment for modernizing and expanding the industrial base and boosting exports. The advice of the World Bank for observing monetary discipline was ignored to keep public debt limit within the parameters of “Fiscal Responsibility and Debt Limitation Act” of 2005. That is why trade bodies were complaining against the trade policy, shrinking the productive capacity of local industry and converting Pakistan into a trading nation. The current Account deficits of around $39 billion in FY 18 and FY 19 point to this grim reality. In the current fiscal year, $ 6 billion foreign debt has been repaid and as per data released by the central bank foreign exchange reserves of the bank are decreasing by 2.57 percent on weekly basis as during the week ending June 5 alone a drop of $266 million has been registered on account of foreign debt retirement. Trade bodies have described insufficient the fiscal incentives announced in the budget for the next fiscal year in the shape reduction in import duty on industrial raw material and avoiding imposition of new taxes. They have expressed disappointment over not accommodating the promised relief measures of gradual reduction in the rate of corporate tax. According to ICCI President Muhammad Ahmad Waheed, the promise of 1 percent reduction in corporate tax has not been fulfilled to bring it down from the current 29 percent to 25 percent by the year 2023. He described phase-wise reduction in corporate tax essential for promoting business and investment. Likewise, Chairman Pakistan Industrial and Traders Association Front (PIAF) Mian Nauman Kabir has expressed disappointment over not giving the concession of lowering utility tariffs. The Finance Advisor has given the indication of increasing gas tariff, which will certainly be followed by massive increase in electricity tariff.