Muneeb ur Rehman

Pakistan eventually got out of the primary account deficit after years. However, the ongoing primary account surplus needs fiscal discipline on part of the government for sustainability, said experts. Speaking to WealthPK, Usman Mustafa, a professor at the Pakistan Institute of Development Economics, asserted that the surplus could only be maintained through a prudent fiscal policy.

He mentioned different dimensions of a prudent fiscal policy. Prominent ones include reducing non-development expenditures, curbing inefficiencies in public sector enterprises, and broadening the tax base. “The budget of Pakistan allocated a substantial amount for non-development expenditures. In this regard, the austerity measures in government offices and reallocation of financial resources from the consumption side to the investment side is necessary”, he added.

It is pertinent to mention that according to the “Monthly Economic Update and Outlook report” by the Ministry of Finance, against the primary deficit of 0.3 percent of GDP last year, the primary balance shows a positive trend this year by recording a surplus of 1.1 percent of GDP. “Investment in development sectors such as telecommunication, railway, and road network will have a multiplier effect on the economy,” he said.

He also mentioned the estimates of leading economist Qaiser Bengali. According to Bengali, “GDP can be increased by 10% to 15% through the multiplier effect of funds transferred from the non-developmental to the developmental sector”. He explained the channel through which reallocation from non-development expenditures to the development sector would help sustain the primary surplus.

“Investment in the development sector would have a positive impact on the GDP growth rate. Higher GDP would respond positively to the primary account through increased tax collection,” he said. Highlighting the importance of public sector enterprises (PSE), he asserted that the losses of Rs2.5 trillion had put a huge pressure on the fiscal side. These losses are hindrances to sustaining fiscal surpluses, he added.

Broadening the tax net was yet another dimension of fiscal discipline, Professor Usman Mustafa highlighted. At present, the number of tax filers has hardly surpassed 3 million according to the Federal Board of Revenue. With a population of 22 million, 3 million is a small number, he lamented. The government should expand the tax base so that tax collection would rise up, eventually helping to maintain a primary surplus, he suggested.

Talking to WealthPK, Anjum Baig, head of economics department at the Karakoram International University Gilgit, suggested some fiscal measures to maintain the primary surplus. “Excessive borrowings on part of the government is a major hurdle to fiscal discipline. Domestic revenues need to be mobilized for expenditures rather than relying on borrowings”.

He also pointed out high-interest rate as the leading factor in determining the primary account position. “The current policy rate of 21% makes interest payments difficult for the government. It eventually leads towards a fiscal deficit”. It is heartening that Pakistan has achieved a primary account surplus after years. However, recommendations from experts for sustaining surplus can be of paramount value.

Credit: Independent News Pakistan-WealthPk