'Government has to keep budget deficit at 4.2 percent to avoid IMF programme setback' - RAJA AQEEL & TAHIR AMIN - BR

ISLAMABAD (Business Recorder): The government has to restrict budget deficit to 4.2 percent, otherwise the International Monterey Fund (IMF) programme is likely to suffer setback. It has to lay more emphasis on revenue generation to make the 7TH National Finance Commission (NFC) Award a success, as 60 percent of total tax collection will be consumed by debt servicing next year.

This was stated by former advisor to the Ministry of Finance, Ashfaq Hassan Khan, at a seminar on 7th NFC Award, organised by 'Sustainable Development Policy Institute' (SDPI) here on Wednesday. Fazlullah Qureshi, a former Secretary, Planning, Senator Adeel, Member NFC NWFP, Awami National Party (ANP), Dr Kaiser Bengali, Member NFC Sindh and Marvi Memon MNA Pakistan Muslim League (Q) were also present on the occasion.

Ashfaq said that the federal government has reduced its share in divisible pool by 10 percent, bringing it down from 56 percent to 44 percent, which would be further reduced to 42.5 percent in the last year of the Award, increasing pressure on federal resources.

"The federal government has to pay Rs 750 billion as debt servicing next year, which would further exceed Rs 1000 billion in the last year of the award", he said. Similarly, defence expenditure is increasing rapidly and would be in the vicinity of Rs 615 billion during the first year of the Award, he added.

"With the implementation of the Award, the federal government Public Sector Development Program (PSDP) would be curtailed to 2 percent of GDP, suggesting that these resources should be spent on development of infrastructure, as social sector will go to the provinces", Ashfaq said.

He said that growth of divisible pool depends on the performance of Federal Board of Revenue (FBR), and added that the board would have to devise policies to meet the revenue target. Provinces will also have to generate surplus resources of Rs 200 billion to properly implement the Award. Value-added tax (VAT) on services will be collected by provinces and for this purpose training of field staffs is necessary to make collection transparent, he added.

He said that agricultural tax, which is a provincial subject, would be collected by the federal government for which provinces also have to share their responsibilities. Giving his comments on Constitutional Package being prepared by the Parliamentary committee, Adeel said that provincial autonomy is necessary for financial autonomy. He termed the Award a landmark achievement under the framework of constitution.

Kaiser Bengali said that announcement of the NFC Award was just a start in the right direction. However, its success would depend on implementation. He said that the government made NFC Award a reality. He said that there had been no award sans democracy. He said that industry was in provinces while its head offices were in Karachi where most of taxes were collected also being the sea port.

He said that basis for the award in the past was population of federating units but this time, multiple criteria was made basis of the award. He said the idea of fiscal equalisation in the award was to bring provinces at par. He said that nobody gave instruction to the Commission while preparing the 7th Award, unlike the previous NFCs. Hence, there was no untoward incident in these 120 days, though hard bargaining did take place. He said: "We wanted solutions and not scoring points or levying allegations."

Marvi Memon said that having an award is something better than nothing. She suggested widening of the multiple criteria formula to include climate change, environmental and other issues. Fazalullah Qureshi said that there were many vague things in the award. He said that President, according to law, can scuttle the award. He appreciated the Federal Government for sacrificing, for the first time in history, its resources for provinces. He said bigger provinces also helped smaller provinces.