Contrary to the government strategy and objectives, a business policy advocacy group has suggested that Pakistan should seek forgiveness of principal and interest on foreign debt.
The Pakistan Business Council (PBC) included sources of debt – China, the Paris Club and bilateral and multilateral lenders – in its proposals for improving the country’s external and fiscal accounts, asking the government to seek professional advice from sovereign debt advisers on restructuring and extending the debt payment terms as well as the cost of servicing.
However, the most controversial suggestion is about renegotiating the 7th National Finance Commission (NFC) Award, which, according to the PBC, heavily towards the provinces, leaving the central government with little fiscal space after debt servicing and defence spending every year.
It seems that the PBC hasn’t even thought about provincial autonomy or is against the very idea of devaluation of powers to the federating units, a sign quite worrisome for a federation.
The other divisive proposal pertains taxing the poor and thus increasing the inflation rate further. The PBC called for increasing the petroleum development levy on diesel to Rs50 per litre from Rs32.50 per litre to generate incremental Rs78bn in the next six months besides a 10 percent sales tax on petroleum products to raise Rs203 billion in the remainder of 2022-23.
Pakistan’s external debt servicing obligation for 2022-23 is $23 billion out of which $6 billion has been repaid while $4bn has been rolled over, which leaves the country with a unfunded gap of $13 billion as of now.
Meanwhile, the PBC also said that that the ongoing IMF loan programme “will not be sufficient” to meet debt obligations unless the same are “significantly restructured”.
The estimated impact of several measures proposed by the PBC on the external account is between $15.7 billion and $18.9 billion. The likely benefit of the proposals for the fiscal account is to the tune of Rs1 trillion.
It suggests the government should focus on increasing the export of services like IT because of the ongoing contraction in global demand for traditional goods such as textiles.
The PBC recommended that narrowing the spread between the informal and official dollar rates will stem the decline in remittances to the tune of $350 million a month or $4.2 billion a year. The government should revise the rates of return on dollar-denominated Naya Pakistan Certificates in line with interest rates globally to help retain current deposits and attract new deposits, it said.
Expediting the sale of re-gasified liquefied natural gas (RLNG) power plants will generate $3 billion, the PBC said and also called for limiting travel for Hajj, Umrah and pilgrimages to Iran, Iraq and Syria to save an estimated $1 billion.
Moreover, non-resident Pakistanis should be made to use their foreign exchange savings abroad to buy air tickets, it noted.
The PBC called for barring non-tax filers from using Pakistan-issued credit cards to buy goods and services in a foreign currency.
It urged the government to maximise the use of variable renewable energy — hydel, wind, solar and nuclear — as well as indigenous coal instead of imported fuels like furnace oil, RLNG and foreign coal.
“Complete reliance on indigenous sources would save $4.7 billion annually, but result in a daily average shutdown of eight hours (with a seasonal variation of 4-10 hours),” it added.
The PBC recommended that the government should reduce the number of working days in a week to four with one-day work-from-home. This measure, along with early market closures, will cut down electricity demand by 10 percent while curtailing petroleum demand by 10-12 percent.
On the other hand, the advocacy group suggested the government should consider alternate-day use of even- and odd-numbered cars, but not motorcycles, to reduce fuel imports.