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Speakers call for adoption of a rule-based fiscal policy

ISLAMABAD, SEPT 08 (DNA) –Dr Javed Ashraf, Vice Chancellor, Quaid-i-Azam University (QAU), in his inaugural address said that while Pakistan’s debt stands at 19 trillion PKR, as long as the returns exceed the cost, debts and loans can lead to many growth opportunities.

The real question is how the loans are being used. Dr Ashraf was speaking at the one-day conference ‘Debt Issues of Pakistan organised by the Islamabad Policy Research Institute (IPRI).

IMF, which has become an ugly word in Pakistan has only asked Pakistan to cut subsidies; to spend responsibly; cut fiscal deficit; and improve our tax base. There is nothing wrong in following the IMF guidelines about generating our own revenues; and carefully examining the proper use of borrowed funds.

President IPRI Ambassador (Retd) Sohail Amin in his welcome address shared that the pernicious combination of absence of tax-paying culture in the country, economic burden of the war on terror and inflation are the major hurdles restraining the government from dealing with the issue of debt accumulation.

Though, Pakistan’s economy has made significant progress toward strengthening macroeconomic and financial stability and resilience as in August 2016, the International Monetary Fund (IMF) has cleared payment to Pakistan of a final $102 million tranche in a $6.4 billion three-year programme.

However, Pakistan’s present and future debt situation demands proper attention and management, he said. He recommended that in order to keep the debt within manageable limits and to reduce the country’s vulnerability to external shocks, there is an urgent need for developing a long-term and comprehensive debt strategy based on the principle of self-reliance and better macro-economic management.

Dr Eatzaz Ahmed, Professor/Director International Institute of Islamic Economics (IIIE), International Islamic University presentation on ‘Pakistan’s Debt Problems: Past, Present and Future’ was of the view that while Pakistan’s current debt situation is not as grave as it was a few decades ago, however, if it does turn into a crisis, it will  impose greater burden on citizens, given additional complications such as circular debt and deteriorating institutions and lack of trust in political leadership whether in power or in opposition.

In his simulated models for the future, he informed that even miniscule changes can lead to major changes given past debt trends, for example, Pakistan’s external debt at 42%may grow, but internal debt (48%) may remain stable.

If tax revenue increases by even one percent, external debt will decline and come down to 19% in 30 years. Cutting government spending can also have an impact on debt, however, increasing tax revenue is the key. In the public sector, capital output ratio is higher so it should be relieved of certain public sector enterprises like the PIA which will increase productivity.Although Pakistan’s current debt burden seems to be sustainable, any major unfavorable external shocks such as a decrease in the flow of foreign remittances due to expected recession in oil exporting Middle East can alter the equation in a fundamental way, he said.

Dr Usman Mustafa, Professor/Head Department of Business Studies, Pakistan Institute of Development Economics (PIDE),was of the view that a rapid escalation of public debt and resultant increase in debt burden in Pakistan has been due to fiscal indiscipline, extension of subsidies, increase in security related and natural disasters expenditures and policy inaction in key sectors.

Dr Sajid Javed Amin, Research Fellow, Sustainable Development Policy Institute (SDPI), Islamabad, was of the view that debt is contextual, and therefore, it is very hard to find a debt-level threshold which is optimal, and one needs to look at each country’s case individually.

The panelists agreed that social costs of debt are visible and painful; and that adoption of a rule based fiscal policy, and institutional strengthening in various entities involved in management of debt was important.

There should be an expansion of government revenues and exports while improving the quality of resource use in the public sector.=DNA


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