IS­LAM­ABAD

The Pak Banker - - COMPANIES/BOSS -

De­spite re­cent op­ti­mism sur­round­ing Pak­istan's econ­omy, the coun­try is fac­ing an "ex­is­ten­tial cri­sis" stem­ming from its woe­ful tax col­lec­tion rates and in­abil­ity to fi­nance it­self, a re­port said Wed­nes­day.

Pak­istan's econ­omy grew at 4.24 per cent dur­ing the 2014-2015 fis­cal year with per capita in­come ris­ing a sig­nif­i­cant 9.25 per cent, mark­ers that come as in­vestor con­fi­dence in the long- un­der­per­fom­ing South Asian gi­ant have also in­creased.

But ac­cord­ing to the re­port by non-profit or­gan­i­sa­tion Raf­tar, funded by Bri­tain's Depart­ment for In­ter­na­tional De­vel­op­ment (DFID), Pak­istan's econ­omy con­tin­ues to rely heav­ily on "com­mer­cial loans, con­ces­sion­ary donor loans and aid".

The coun­try's tax-to-GDP ra­tio of 9.4 per cent is among the low­est in the world, lead­ing to a public debt of 17 tril­lion ru­pees ($163 bil­lion).

This an al­most three-fold in­crease since 2008 for the $232 bil­lion econ­omy, with 44 per cent of tax rev­enue go­ing to­ward in­ter­est pay­ments.

The re­port blamed the lack of a "tax cul­ture" on non-rev­enue sources of funds the coun­try has his­tor­i­cally en­joyed in the form of for­eign aid and loans. It said 68 per cent of tax rev­enue was be­ing gen­er­ated through in­di­rect taxes on fuel, food and elec­tric­ity, which un­fairly pe­nalises the poor.

The lack of rev­enue col­lec­tion also neg­a­tively af­fects in­fra­struc­ture de­vel­op­ment in­clud­ing power gen­er­a­tion, with the coun­try fac­ing a mas­sive short­fall of up to 4000MW in the sum­mer that shaves about $15 bil­lion off the coun­try's GDP.

Pak­istan is cur­rently in a $6.6 bil­lion loan pro­gramme with the In­ter­na­tional Mon­e­tary Fund, which was granted on con­di­tion that Is­lam­abad car­ried out ex­ten­sive eco­nomic re­forms, par­tic­u­larly in the energy and taxa- tion sec­tors.

Mean­while, Pak­istan's grow­ing econ­omy is sta­ble enough to stand up to the global and lo­cal stock mar­ket down­fall emerg­ing from China, the world's sec­ond-largest econ­omy, a busi­ness leader said Wed­nes­day.

The lo­cal stock mar­ket panic ap­peared to be eas­ing fol­low­ing a dra­matic sell-off by in­vestors who blindly fol­lowed for­eign in­vestors to over­re­act, said Pres­i­dent Pak­istan Busi­ness­men and In­tel­lec­tu­als Fo­rum (PBIF) and for­mer pro­vin­cial min­is­ter Mian Zahid Hus­sain.

Ups and downs in the stock mar­kets is a nor­mal phe­nom­e­non and some volatil­ity was likely to con­tinue but the re­cent falls had been over­done, he added.

Talk­ing to busi­ness com­mu­nity, he said that stock mar­ket should not be con­sid­ered real econ­omy and it should not be linked to GDP.

He said that the cri­sis took birth in China where the mar­ket is still 50 per­cent higher than the cor­re­spond­ing pe­riod.

Lo­cal bro­kers and in­vestors shouldn't have fol­lowed for­eign in­vestors who have only 10 per­cent in mar­ket cap­i­tal­i­sa­tion and 30 per­cent share in free-float shares; they have a dif­fer­ent men­tal­ity and dif­fer­ent goals, he added.

Mian Zahid Hus­sain who is also Pres­i­dent of All Karachi In­dus­trial Al­liance said that those com­par­ing China cri­sis with global eco­nomic cri­sis of 2008 are pes­simistic.

He said that gov­ern­ment should keep an eye on stock mar­ket, dol­lar and those try­ing to ma­nip­u­late the sit­u­a­tion, im­prove ex­ist­ing guide­lines and laws and over­come mafia which de­prived masses of bil­lions is the stock mar­ket crash seven years ago. He said that de­spite some anx­i­ety, the Pak­istan's stock mar­ket which has climbed by 12 per­cent in 2015 will con­tinue bullish trend if re­forms were in­tro­duced im­me­di­ately.

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