The global environment is undergoing rapid changes; in particular following the macro-economic control and reforms of state enterprises, the government has embarked reforms of its capital markets by giving a 1% reduction in tax rate for new enlistment. While setting out strategies to cope with the ongoing global challenges and a sustained growth of Pakistani economy depends largely on the extent to which it meets the competitive pressure emerged globally.
People believe that Pakistan’s competitive edge lies in its financial services sector, given the development of infrastructure and rigorous regulatory framework. These are the sector that we should further strengthen to complement the development and to stand out from other countries, in particular our neighbors.
Under the theme of “Fostering Pakistan’s position as Regional Hub as an international financial and business centre”, my submission recommends fiscal measures that are critical to Pakistan’s sustained position as a major capital market in the region, a fund raising platform for regional companies, and a premier location for regional headquarters or offices of multinational companies. My recommendations underpin the essential characteristics of an international financial and business centre, which include an effective legal system, transparency, certainty and consistency in policies, a low tax regime, a favorable tax environment, low transaction costs, a pool of talents and professionals, and an environment that facilitates quality life.
Continuing with our robust recovery in 2004 – 2005, the growth momentum of Pakistan’s economy was further strengthened in 2005 – 2006 except with the law and order situation and some mishaps in relation to foreign investors after the political, economical, social, legal, environmental and technological analysis [PESTEL]. Pakistan continues to benefit from the strong economic growth with comparative base set years ago and the package of policy measures initiated by the current Government which are based on hypothetical analysis and detailed economic analysis has already been published in newspapers.
Statistics and surveys reveal an encouraging outlook. Pakistan's economy should grow by 6.5 to 7.0 percent in the fiscal year ending June 1 this year as per Governor SBP with inflation level of around 8% which is not possible without a tight monetary policy. Although such surveys are normally subjective and the first example is the GDP of Pakistan which was calculated on the basis of 1980-81 figures but suddenly the year 1999-2000 has been declared as base year. This sudden change has shown a tremendous improvement in GDP by 19.5% as compared to old base year.
The property market (especially the luxury end of the market) has continued to pick up; however, there are no measures to curb the speculative forces. Our stock market has done better over the past year and index gained around 54% during the last year. The rise in property and asset prices is broadly in line with better economic prospects.
With a robust property and stock market, the fiscal pressure is expected to be greatly relieved, however, there is a dire need to define the economic fundamentals in a policy statement which would make this growth sustainable and must include ways of controlling inflation in order to achieve maximum stability in prices instead of putting the windfall gains like 9/11 and allies in the war on terrorism in the kitty.
It is suggested that there must be an amendment in the constitution to compel the governments to formulate a strategic budget for their term at the beginning of the life of a parliament. However, minor changes on any annual basis during the course of parliament needs to be allowed for correction as major changes introduced regularly create uncertainty.
It is further suggested that Government needs to be bounded to present the budget information in a financial statement. Such financial statement may include macro economic assumptions [including estimates of aggregate growth, inflation and exchange rate], fiscal deficit, deficit financing [describing anticipated composition], Debt stock [including details at least for the beginning of the current year], Financial assets [including details at least for the beginning of the current year], Prior year budget out-turn [presented in the same format as the budget proposal], Current year Budget [either the revised budget or the estimated out-turn, [presented in the same format as the budget proposal], summarized budget data for both revenue and expenditure according to the main heads classification including data from current and previous year, explanation of budget implication of new policy initiatives with estimates of the budget of all major revenue policy change or some major changes in expenditure programs.
Government must ensure that a similar sort of statement is about to be obligatory by international forums are working over such area and recently International Public Sector Accounting Standard Board has issued Exposure Draft 27 – Presentation of Budget information in financial statement. It is said to say that Pakistan Institute of Public Finance Accountants [PIPFA] is far behind in incorporating such changes and developing itself as the helping hand of the public sector after replacing the SAS body. Government should encourage PIPFA to offer public sector qualification on the model of CIPFA of UK and must devise a qualification in line with the pronouncement of IPSASB in order to fill the gap of SAS.
While the near-term outlook is positive, challenges remain. The current favourable business sentiment hence provides a good opportunity for the government to formulate a blueprint of fiscal policies in order to foster robust and sustainable growth over the medium and longer term.
A blueprint is needed to incorporate the provision for transformation of existing legal system into an effective legal system, make Pakistan a low tax regime coupled with favourable tax environment, low transaction cost, provision for talents and professionals and creating an environment that facilitates qualitative life.