ISLAMABAD: Ministry of Finance (MoF) has reportedly started making proposals for a minibudget with a huge cut in government expenditure and an increase in Regulatory Duties (RD) to deal with the economic situation in the current financial year. The proposals made by the caretaker government will be reviewed by the next government under Pakistan Tehreek-e-Insaf (PTI).
According to sources, the ministry has worked out what changes could be made in the budget 2018-19 presented by previous government led by Pakistan Muslim League Nawaz (PML-N) keeping in view the current account deficits, public debt and grave position of reserves.
The ministry is likely to propose a massive cut in expenditure both current and development expenditures. The ministry is also going to propose a drastic increase in RDs on over 1000 items as the government needs to reduce the import bill, especially during the next six months when the position of reserves would be critical. Besides, the next government would be given the proposals of revamping the tax structure and revenue administration, revisiting various development projects, arrangements for immediate borrowings to bring both budget and current account deficits to sustainable levels.
For restricting imports, which are consuming a large portion of reserves, both the Ministry of Commerce (MoC) and Federal Board of Revenue (FBR) have reportedly held various meetings during the past two months. However, the move may invite criticism from various sectors as the MoF has not consulted them for major decisions. Earlier, the previous government had come under fire introducing increased RDs on 731 items.
As the MoC and FBR had faced criticism in standing committees previously for proposing an unreasonable hike in duties on imports, used as raw material for manufacturing of products, both the organisations are now waiting upon the Finance Division to make the final decision. “The commerce ministry has proposed a list of items to the FBR on the desire of MoF for increasing RDs,” said an official on terms of anonymity.
However, the matter would be decided once the new government takes charge as Election Act 2017 bars interim government from taking major decisions.
Despite the limited power under law, the caretaker government has however taken the decision of raising the interest rate to 7.5 per cent from 6.5 per cent and allowed depreciation of the rupee to an unexpected level. Both these decisions, according to the official, will contribute to the economy in the longer run.
However, avoiding taking another major decision, the caretaker government has decided to leave the option of cutting expenditure for the next government.
Though the import bill went up despite the imposition of regulatory duties two times and other restrictive measures taken by the central bank and Commerce Division in the outgoing fiscal year, the finance ministry, as per FBR’s suggestion, was all set to impose further RDs. The import bill stood at $60.86 billion by end June while export proceeds bought a mere $23.22 billion, leaving a huge trade deficit of $37.64 billion.
According to sources FBR has proposed to further impose RD on those items which are presently allowed either at zero per cent or preferential duty under the free trade agreements. Similarly, it has also recommended halting further preferential agreements which are currently under negotiations.
However, an insider claimed that whatever proposal the ministry has prepared for the next government is mere paperwork. It is actually no more than a briefing made for the next finance minister. Except for the proposal for imposition of duties, no in-depth proposals have been made for the new government.