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SBP report: so far so good

SBP report: so far so good

According to the first-quarterly report of the State Bank for 2016-17, the higher fiscal deficit and low tax collections are appearing as serious challenges for the government to spur economic growth. The fiscal deficit in terms of gross domestic product stood at 1.3 percent during the first quarter which is the highest quarterly level since 2011-12. In view of the rising shortfall in revenue collections, containing the total fiscal deficit to 3.8 percent of the GDP for a year could be a challenge for the government. However, the State Bank wants to keep the current account deficit within the range of 1 percent to 2 percent of the GDP during the current fiscal year. It is a matter of concern that the tax revenues are dwindling despite the government has enhanced tariffs on various products and amended the finance bill to regulate various sectors of the economy. The government’s current spending has shown a marginal decline, but development expenditures have increased by 12.4 percent during the first quarter and it will have to make extra efforts to achieve fiscal consolidation

The initial assessment of the State Bank indicates that the economy is moving in the right direction as the agriculture sector has shown improvement in sugarcane and maize production, which account for 14.6 percent of the crop sector. The two crops are likely to reach record levels during the current fiscal year.However, cotton crop has missed the target of 14.1 million bales and the rice production has also remained below the last year’s average. This is due to decline in the crop area by 20.8 percent in Punjab this year as well as due to low cotton prices at the time of sowing. Another reason for the rising deficit is decline in the non-tax revenues.

One point is clear. The government has very loose grip on various sectors, including the financial and production sectors. There is no need to depend on foreign loans, donations and funds and the policymakers are required to adopt realistic approach. The writ of the government is weak and that is the main reason behind low tax collections and low tax-to-GDP ratio in the country. When all the institutions are working within their domains, the only reason for the economic woes is the lethargic attitude of the official machinery.

The bank report only indicates the ground situation, but the government must take it seriously to overcome the problem areas. Pakistan has been bestowed with human and natural resources and the government only needs to do is to take wise decisions to allow the economy to move on the right track.