The Senate Standing Committee on Finance has suggested the new government to reduce the number of ministries to 25 from 40, initiate reforms in the state owned entities and the Federal Board of Revenue (FBR) apart form the implementing austerity drive to steer the country out of current economic situation.
The letter written to the new finance minister Ishaq Dar by Nasreen Jalil, Chairperson of Senate Finance Committee said, “Previous government increased the fuel prices by phasing out of fuel subsidy especially on diesel resulting in increasing in cot of doing business and also increased inflation in the country.”
The letter said, “Unlike popular notion of Balance of Payment / Reserve Erosion Crises, the biggest issue at-hand is of Fiscal Deficit.”
The biggest issue at-hand is that of Fiscal Deficit, currently running at over 7.5 percent or Rs1.7 trillion, but it can very well be tackled through Public Sector Entities (PSEs) and Federal Board of Revenue (FBR) reforms apart from the reduction in interest rates, the chairperson Senate Standing Committee on Finance has suggested the new finance minister of the country.
While criticising the previous government for increasing the fuel prices, she said, “Had that not been done, the escalation in the international fuel prices would have put further pressure on the foreign exchange reserves, but, now the higher fuel prices have been absorbed by the system in the cost of doing business.” Ms Jalil said, “Yet, the circular debt issue remains, mainly due to inefficiencies and choke up in receipts from end consumers including Government entities and also electricity theft and system leakages/ inefficiencies.”
The letter by Ms Nasreen Jalil, said, “As the chairperson of Finance Committee, I feel strongly about the fiscal measures and policies that require attention and so I must share my views with you.”
However, Ms Jalil has added, ‘Although, I know that you are thinking on the same lines and are more than competent to take the country out of economic quagmire and take it forward.”
The letter said that the odds faced by the country are ‘Bad Governance, Corruption, Negative Perception in the World, Excessive Government Borrowing and the Debt-Trap, but it added that– there is silver-lining on the economic front on which the new government’s finance & economic team can capitalise.
The suggestions included in the letters included reduction in interest rates by 150-200 bps, which will bring the overall fiscal deficit down by Rs200 – 250 billion.
It has been suggested that reduction in interest rates would result in decreased Cost of Doing Business, boosting much needed investments and economic activity and reducing inflation.
The chairperson finance committee said that the New Government needs to show the same resolve and commitment this time around also which will be enough to bring the deficit down by Rs600-700 billion.
It has been suggested to capitalise on all-time high Karachi Stock Exchange 100-Index which hovers around 20,000 mark, in anticipation of better financial & economic environment.
Austerity – The letter from the chairperson finance committee has said that there is no escape from the austerity-drive and cost-cutting measures, which are essential to give a positive message to the world that the ‘New Government’ means business.
It is needed put to more productive use to enhance efficiencies and get better results from the existing resources.
Balance of Payment - On the BoP front, situation is not that scary, as it has been presented. The projected BoP deficit in 2014, in a worst-case scenario, is $800-1,000 million, which can be well taken care of from the available structured commercial borrowings alone, if the need be.
There is enough appetite for such funding in the international market with the advent of the New Government.
To invite investments the chairperson senate standing committee on finance has suggested the new government to materialise the process of auctioning of 3G License, which is expected to attract at least $1.2 billion in investments.
“Right management is needed to get the much-awaited $800 million from Etisalat Telecom,” the letter said adding that these potential successes will surely help in attracting foreign investment and revival of privatization process in Pakistan;
Structural Changes and Restructuring –
The letter said, “Lean, mean Government structure is the need of the hour, for effective and efficient management of the government and deliverable democracy, we are recommending various Ministries/ Divisions to be merged/ restructured/ upgraded/ created and to reduce the total number of Ministries from 40 odd to less than 25.”
Among other things Ms Jalil has recommended the new government to make Statistics Division into a more independent robust Division with full Secretary and Minister for State.
“This Division alone can do wonders, if run properly” the letter said adding that the timely and accurate availability of data is the key to making most effective, accurate and informed decisions.
However, on the other hand, Planning Commission may need to be dissolved, as there is very limited relevance of this Division with the changed realities and uncertainties in Pakistan and globally.
“Perhaps, 5-Year plans are no longer relevant; instead short-term plans are more pertinent, workable and measurable,” the letter said.
FBR : There are serious reforms required with the current budgetary revenue gap / deficit of around Rs300 billion. Nawaz Sharif Government earlier also embarked upon the reform in FBR with brining-in a professional, rather than a bureaucrat, as the Chairman. A similar initiative is required this time round also. A major Human Resource shake-up is absolutely necessary.
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