ISLAMABAD: The Finance Ministry has taken numerous steps to maintain fiscal deficit at 4.9% of Gross Domestic Product (GDP) after downward revision of tax revenue.
Gross Domestic Product (GDP’) is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period, though GDP is usually calculated on an annual basis.
Similarly, fiscal deficit is regarded by some as a positive economic event. For example, economist John Maynard Keynes believed that deficits help countries climb out of economic recession.
The burgeoning fiscal deficit is not an isolated phenomenon. It is related to a lack of political will to undertake fundamental structural reforms, enforce fiscal discipline, tax the rich and mighty, crack down on parallel economy by confiscating untaxed assets, abolish unprecedented perks and benefits to the ruing elites, eliminate wasteful expenses, dismantle rent-seeking structures, provide impersonal market relationships ensure the rule of law, stop ‘reckless’ borrowing and ‘ruthless’ spending.
“Therefore the Finance Ministry took stringent measures to overcome fiscal deficit including increase in non-tax revenue receipts i.e. surplus profit from State Bank of Pakistan due to sale proceeds of Allied Bank Limited and Habib Bank Limited” a well placed source at Finance Ministry told this scribe here on Thursday.
Increase in tax revenue receipts due to adjustment in rates of General Sales Tax and Regulatory Duty on POL products and luxury items, austerity measures and non-provision of Supplementary Grant as well as any additional adjustment, if required, would be made through rationalization of expenditure.
These measures have successfully reduced the fiscal deficit and the economy is now on a more stable footing and was benefiting from the drop in world oil prices. It encouraged the government to reduce the policy rate by 50 basis points from 8.5% to 8.0%, bringing the interest rate to a 13-year-low in the country.
The interest rate reduction comes as inflation sits at eight percent, down from a high of around ten percent last year. On Saturday, the central bank projected that inflation would fall to as low as four percent by the end of this fiscal year on June 30.
Therefore now it is expected that GDP growth rate would surpass the 4.4% recorded in the previous financial year. However, it said that tax returns showed a sluggish trend Pakistan’s economy was in a mess when Nawaz Sharif took over as prime minister in May 2013, with the International Monetary Fund granting a $6.6 billion loan package later that year.
The loan came on condition that government would carry out extensive economic reforms, particularly in the energy and taxation sectors. This current macroeconomic stabilization has thus opened a window of opportunity to gear up reforms to ensure sustainable improvement in the economy.