THE GROWING FISCAL DEFICIT OF

FEDERAL GOVERNMENT
AN ACTION PLAN FOR ITS SOLUTION

Muhammad Usman Ashraf

CSID:4708085

1
 Sequence of Presentation
• Currency of the topic
• Introduction
• Historical perspective
• Key areas to address
• Tax collection
• Export promotion
• Current Account Deficit
• Circular Debt Resolution
• State Owned Enterprises
• Conclusion
• Recommendations
• Bibliography 2
List of Acronyms
• CSF…………………………………………………Coalition Support Fund
• PSE…………………………………………………Public sector enterprises
• PRA…………………………………………………Pakistan Revenue Authority
• FTA…………………………………………………Free trade agreement
• GSP…………………………………………………Generalized System of Preferences
• IPPs…………………………………………………Independent power producers
• FDI………………………………………………….Foreign Direct investment
• DISCOs……………………………………………Distribution companies
• NEPRA……...…………………………National Electric Power Regulatory Authority
• SPL…………………………………………………Sarmaya-e-Pakistan Limited

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Currency of the Topic 1/2

4
Currency of the topic 2/2

5
 Fiscal Deficit
• Shortfall in a government's income compared with its spending
10 8.8
9 8.2
8 7.3 7.2
7 6.2 6.5 6.6
5.4 5.5 5.5 5.3 5.8
6 5.2
Percentage

4.3 4.6
5 4 4.1
4
3.6 3.3
3 2.3
2
1
0
2001

2002

2003

2006

2007

2008

2011

2012

2013

2017

2018

2019
2000

2004

2005

2009

2010

2014

2015

2016
Year

Fiscal Deficit (% of GDP)

. Source: Economic Survey of Pakistan & Debt Policy Coordination Office Staff Calculations, Ministry of Finance
6
Budget document, Ministry of Finance 7
Key areas to address

• Revenue collection
• Export promotion
• Current Account Deficit
• Circular debt resolution
• State Owned Enterprises

8
Revenue collection
• Tax Administration Reform Program (TARP)
a) Policy reforms
b) Administrative reforms
c) Organizational reforms
• Introduction of Pakistan Revenue Authority (PRA)

https://www.fbr.gov.pk/article-on-reforms/131167/174
9
Revenue collection (contd.)
• Policy reforms
a) Simplification of laws & elimination of exemptions
b) Less dependence on withholding taxes
c) Effective dispute resolution mechanism
• Administrative reforms
a) Transforming income tax organization on functional lines
b) Maximum digitalization
c) Capacity building of FBR workforce
• Organizational reforms
a) Harmonization of operations
b) Pakistan Revenue Authority (PRA)

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Export promotion
• Export basket diversification
a) Addition of high value-added products (high tech)
• Export market diversification
a) East European and Central Asian Republics
b) Better utilization of FTAs and GSP Plus
• Value addition orientation (R&D)
• Competitiveness of products
• Lowering input cost of production (utility, transport)
https://thediplomat.com/2019/04/pakistans-economic-woes-the-way-forward/,
https://www.pakistantoday.com.pk/2016/11/06/how-to-boost-pakistans-dwindling-exports/ 11
Current Account Deficit
• Investment-friendly environment to attract FDI
• Promotion of Ease of Doing Business
• Encourage domestic investment
• Infrastructure development of SMEs
• Import compression
* paradox that about 35% of revenue receipts of FBR comprise import
& custom duties

United Nations Commodity Trade Statistics (UN Comtrade), World Bank’s Ease of Doing Business report 2019,
Global Competitiveness Index (2018) 12
Circular Debt Resolution
• More targeted subsidies
• Capacity building of DISCOs
• Amended NEPRA act implementation
a) Establishment of appellate tribunals
b) Autonomy of NEPRA
• Revision of capacity payment formulas

https://www.adb.org/sites/default/files/evaluation-document/397216/files/sape-pakistan-energy.pdf 13
State-Owned Enterprises
• Separation of govt’s regulatory functions from business operations
• Improvement of corporate governance
• Clear mandate of enforcement through legal and regulatory regime
• Clarity of ownership rights and jurisdiction of shareholder authority
• Empowered BoDs
• Clearly defined roles and authorities of BoDs
• Effective compliance with international accounting and financial
reporting standards
• Rights of minority shareholders

Economic Survey of Pakistan FY2018-2019, World Bank. 2014. Corporate Governance of State-
owned Enterprises: A Toolkit. DOI: 10.1596/978-1-4648-0222-5. Washington, DC: World Bank. 14
Conclusion
• Growing fiscal deficit – a serious threat to economy and state
• Import compression (short term measure)
• Export promotion – vital to build foreign exchange reserves and curb
Current Account Deficit
• Energy sector revamping required – key issue of circular debt
• Tax collection mechanism reforms need to be accelerated
• Modernization of agriculture sector
• Austerity measures to keep non development expenditure under
control
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Recommendations
• Administrative, organizational and policy reforms under Tax
Administration Reforms Program (TARP) should be implemented to
the fullest.
• Exports can be enhanced with special focus on export basket
diversification, export market diversification and reducing the input
cost.
• To attract Foreign Direct Investment, Ease of Doing Business should
be a special focus of the incumbent government.
• Sarmaya-e-Pakistan holding company should be made fully
autonomous to get the best results out of the revamping efforts
concerning State Owned Enterprises.

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Bibliography
• Source: Economic Survey of Pakistan & Debt Policy Coordination Office Staff Calculations, Ministry
of Finance
• https://www.fbr.gov.pk/article-on-reforms/131167/174
• https://thediplomat.com/2019/04/pakistans-economic-woes-the-way-forward/
• https://www.pakistantoday.com.pk/2016/11/06/how-to-boost-pakistans-dwindling-exports/
• United Nations Commodity Trade Statistics (UN Comtrade)
• World Bank’s Ease of Doing Business report 2019
• Global Competitiveness Index (2018)
• https://www.adb.org/sites/default/files/evaluation-document/397216/files/sape-pakistan-
energy.pdf
• Economic Survey of Pakistan FY2018-2019
• World Bank. 2014. Corporate Governance of State-owned Enterprises: A Toolkit. DOI:
10.1596/978-1-4648-0222-5. Washington, DC: World Bank.

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Thank You
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