The CEO and President, The Bank of Punjab, Zafar Masud, shares his thoughts on Pakistan’s leaky fiscal space, and the urgent need to reprioritize our allocation of subsidies.
“Our core problem is in our fiscal space, and the leakages in it need to be plugged. We have created inefficiencies and distortions through subsidies ourselves, and we need to remove them.”
Zafar Masud
About Pakistan’s Leaky Fiscal Space
Zafar Masud’s statement is a reference to Pakistan’s high fiscal deficit. A fiscal deficit is when a government’s spending exceeds its revenue. This is typically financed through borrowing, which can lead to high levels of debt.
Pakistan’s fiscal deficit has been high for many years, and it has been a major contributor to the country’s economic problems. The deficit has meant that the government has had less money to invest in essential public services, such as education and healthcare. It has also made Pakistan more vulnerable to external shocks, such as a decline in oil prices or a rise in interest rates.
Masud argues that the core of Pakistan’s fiscal deficit problem is inefficiencies and distortions in the government’s budget. One example of this is subsidies. The Pakistani government provides subsidies on a wide range of goods and services, including food, fuel, and electricity. These subsidies are often inefficient and wasteful, and they benefit the wealthy more than the poor.
Another example of inefficiencies and distortions in the government’s budget is the public sector enterprise (PSE) sector. PSEs are businesses that are owned and operated by the government. They often receive preferential treatment from the government, such as subsidies and tax breaks. However, many PSEs are inefficient and poorly managed. They are a major drain on the government’s budget.
Masud argues that Pakistan needs to plug the leakages in its fiscal space by removing inefficiencies and distortions in the government’s budget. This means reducing subsidies, reforming PSEs, and improving tax collection. It is also important to reduce government spending and increase tax revenue.
Taking these steps will be difficult, but it is essential for Pakistan to reduce its fiscal deficit and put the country on a sustainable path to economic growth.
Here are some specific examples of how Pakistan can plug the leakages in its fiscal space:
- Reduce subsidies. The government can reduce subsidies on goods and services that are not essential or that benefit the wealthy more than the poor. For example, the government could reduce subsidies on fuel and electricity for wealthy consumers. It could also reduce subsidies on food products that are not consumed by the poor, such as meat and processed foods.
- Reform PSEs. The government can reform PSEs by making them more efficient and profitable. It could do this by privatizing some PSEs, merging others, and liquidating those that are not viable. The government could also improve corporate governance at PSEs and reduce political interference.
- Improve tax collection. The government can improve tax collection by reducing corruption and making it easier for businesses to pay their taxes. It could also introduce new taxes, such as a value-added tax (VAT).
- Reduce government spending. The government can reduce spending by eliminating wasteful expenditures and streamlining bureaucracy. For example, the government could reduce the number of civil servants and cut back on unnecessary travel and entertainment.
- Increase tax revenue. The government can increase tax revenue by broadening the tax base and raising tax rates on high-income earners. It could also introduce new taxes, such as a wealth tax.
By taking these steps, Pakistan can reduce its fiscal deficit and put the country on a sustainable path to economic growth.
Further Reading
Transitioning Away from a Cash Economy
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