Pak­istan re­jects call to de­mon­e­tize 5,000-ru­pee note

Kuwait Times - - BUSINESS -

Pak­istan’s gov­ern­ment has dis­missed a rec­om­men­da­tion from the up­per house of par­lia­ment to scrap the 5,000 ru­pee ($48) bank note to cut the flow of il­licit money and re­duce the size of the in­for­mal econ­omy. In­dia scrapped its two big­gest cur­rency bills - the 1,000 ru­pee ($15) and 500 ru­pee notes - in Novem­ber in a bid to flush out money hid­den from the tax man, lead­ing to acute cur­rency short­ages and rais­ing con­cern about growth there.

Pak­istan’s Se­nate passed a non-bind­ing res­o­lu­tion this month call­ing for the gov­ern­ment to fol­low suit to “re­duce il­licit money flow, en­cour­age the use of bank ac­counts and re­duce the size of the un­doc­u­mented econ­omy”. But the fi­nance min­istry ruled out such a de­mon­e­ti­za­tion, say­ing it would hurt busi­ness. “Given the con­tin­u­ing use of cash in trans­ac­tions, the gov­ern­ment be­lieves that dis­con­tin­u­a­tion of the 5,000 ru­pee note would ad­versely af­fect the ef­fi­ciency of ex­change in busi­ness,” the min­istry said in a state­ment, seen by Reuters yesterday. The 5,000 ru­pee note is Pak­istan’s big­gest. Dur­ing the last fi­nan­cial year, 17 per­cent of cur­rency notes printed were of the 5,000 de­nom­i­na­tion, the fi­nance min­istry said. Pak­istan has a huge in­for­mal econ­omy and trans­ac­tions are of­ten han­dled in cash, partly be­cause much of the pop­u­la­tion is not in the for­mal sec­tor.

The gov­ern­ment fre­quently of­fers tax amnesties to en­cour­age peo­ple with hid­den wealth to de­clare as­sets and en­ter the bank­ing sys­tem, hop­ing to ex­pand an ex­tremely nar­row tax base.

But gov­ern­ments have strug­gled for decades to boost a mea­gre tax-to-gross do­mes­tic prod­uct ra­tio of only about 10 per­cent. The min­istry said the gov­ern­ment hoped to en­cour­age dig­i­tal bank­ing to “re­duce the de­pen­dence on cur­rency”. “This is the way to move for­ward for pro­mot­ing doc­u­men­ta­tion in the econ­omy rather than by can­celling any ex­ist­ing de­nom­i­na­tion,” it said. — Reuters

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