Beruflich Dokumente
Kultur Dokumente
♦ Resource Mobilization
– How should we mobilize resources?
− Through an efficient tax system
− But what is an efficient tax system
2
♦ An Efficient tax system is one which is capable to finance the
necessary level of public spending in a most efficient, fair and
equitable manner
– An efficient tax system should raise enough revenue to finance essential
expenditures without recourse to excessive borrowing from within and
outside the country in an equitable manner
3
♦ Why has Pakistan’s Tax efforts remained stagnant over the years?
♦ Pakistan Tax System Suffers from Several Weaknesses
− Narrow and Punctured tax base
− Narrow because of a number of exemptions/concessions. Few sectors
pay taxes
− Punctured because of tax evasion
♦ High Tax Rates
– Tax Rates are pitched at high levels (e.g; sales tax rates range from
17% to 50%) which created disincentives to pay taxes.
♦ Multiplicity of Taxes
– Individual firm facing numerous types of taxes
– Overdependence on indirect taxes (on average 62% of total taxes). If
withholding tax, which are indirect in nature and effects, are excluded
from direct taxes, the share of indirect taxes remains as high as 80
percent of total taxes
4
– Overdependence on Trade Taxes (roughly 40 percent of total taxes)
– Tax System is complex and tedious, along with high rates, have bred
corruption and encouraged evasion
– Non-availability of reliable statistics from the businesses made it
difficult for tax administration to assess the potential taxes to be
collected
– Structure of the economy itself has made it difficult to impose and
collect taxes.
• Large share of agriculture in output and employment
• Low share of wages in total income, large informal sector activities
• Low literacy rate and human capital made it difficult to develop a
good tax administration
• No accountability in tax administration
− Economic and Political powers are concentrated to those who either
do not pay taxes or pay much less than what they should have been
paying.
5
♦ Consequences
– Low and stagnant tax-to-GDP ratio
– Low tax elasticity and tax buoyancy
– Forced the government to change the definition of tax by including
cess/surcharges/levy. For example, since 2013-14, we have added Gas
Infrastructure Development Cess (GIDC), Natural Gas Development
Surcharge (NGDS) and Petroleum Levy as taxes to show higher tax-to-
GDP Ratio. In 2014-15, we added Rs. 301 billion in taxes.
– It has also forced the government to rely heavily on non-tax revenue
which increased from Rs. 443 billion in 2011-12 to Rs. 941 billion in
2013-14. it was Rs. 838 billion in 2014-15
♦ Non – Tax Revenue Include:
– SBP Profit
– Coalition Support Fund (CSF)
6
Table 1: Trends in Revenue (as % of GDP)
Years (Averages) Total Revenue Total Tax Revenue Non – Tax Revenue
1990s 13.9 11.1 2.8
2001-07 13.9 10.5 3.4
2008-15 13.8 10.3 3.5
Source: Ministry of Finance, Government of Pakistan
7
♦ Expenditure Policy
– Two types of Expenditure
• Current Expenditure
– Interest Payments
– Defense and Security – Related
– Running Civil Administration
– Subsidies
– Development Expenditure
8
♦ The level, financing, patterns, and effectiveness of expenditure
greatly influence the level of economic activity, employment,
poverty and income distribution
♦ Pakistan’s fiscal challenges of the 1990s and of 2008-15 were largely
the result of expenditure growing at a much faster pace than
resource mobilization
♦ Why Expenditure grew so fast
− Premature Liberalization of Interest Rates in early 1989
− Poor governance and lack of accountability
− Prestige Projects(Larkana, Gujrat, Multan, Lahore packages)
− Ribbon cutting culture
− Losses of Public Sector Enterprises
− Subsidies
− Power Sector
9
Table 2: Trends in Expenditure (as % of GDP)
Years (Averages) Total Expenditure Current Expenditure Development
Expenditure
1990s 20.0 16.1 3.9
2001-07 17.7 15.0 3.1
2008-15 20.5 16.9 3.4
10
Table 3: Trends in Current Expenditure (as % of GDP)
Years (Averages) Current Defense Interest Payments Subsidies
Expenditure Expenditure
1990s 16.1 4.7 5.2 0.7
2001-07 15.0 3.2 4.0 0.8
2008-15 16.9 2.5 4.5 2.1
11
Trends in Defense Spending
Defence Spending Defence Spending Defence Spending Defence
(Billion Rs) (Billion Rs)* (Billion $) Spending
Years
(Billion $)**
2000-01 131 131 2.24 2.24
2001-02 149 141 2.43 2.36
2002-03 160 150 2.73 2.61
2003-04 185 166 3.21 3.08
2004-05 212 174 3.57 3.26
2005-06 241 183 4.03 3.55
2006-07 250 176 4.12 3.52
2007-08 277 174 4.43 3.68
2008-09 330 172 4.20 3.36
2009-10 375 175 4.47 3.59
2010-11 451 185 5.27 4.16
2011-12 507 187 5.68 4.12
2012-13 541 186 5.59 4.04
2013-14 630 199 6.03 4.33
Source: Pakistan Economic Survey 2013-14, 2012-13 and 2006-07
* at constant price of 2000-01
** at constant price of 2000 12
Trends in Defense Spending
13
Barden of Defense Budget
Years Defence Spending Per Capita Defense
as % of GDP as % of Budget Spending ($)*
2000-01 3.2 18.3 16
2001-02 3.4 18.1 16.5
2002-03 3.3 17.8 17.8
2003-04 3.3 19.7 20.6
2004-05 3.3 19.0 21.4
2005-06 2.9 17.2 22.8
2006-07 2.7 13.9 22.3
2007-08 2.6 12.2 22.3
2008-09 2.5 13.0 20.0
2009-10 2.5 12.5 20.9
2010-11 2.5 13.1 23.8
2011-12 2.5 12.9 23.0
2012-13 2.4 11.2 22.1
2013-14 2.5 12.3 23.3
2014-15 2.5 12.7 23.0
Source: Pakistan Economic Survey 2006-0714 and 2013-14, * at const. price of 2000
Barden of Defense Budget
15
Bulk of Pakistan’s expenditure is recurring (current) in
nature (80-85%)
Within the recurring expenditure, interest payments (27%)
and defense spending (15%) account for 42 percent.
Development expenditure appears to have served as a
residual budgetary item and the burden of fiscal adjustment
has always fallen on development expenditure
Deterioration in physical infrastructure such as energy,
roads, transport; and human capital such as education,
health and skill developments are the obvious outcome of
neglecting development expenditure
Quality of Expenditure
− It is not the expenditure perse but the quality of
expenditure matters for economic development
16
Table 4: Shares of Budgetary Allocation in Total Expenditure (%)
Items 1990s I 1990s II 2001-05 2006-10 2010-11 2011-12 2012- 2013- 201
13 14 4-15
Total Expenditure 100 100 100 100 100 100 100 100 100
- Current Expenditure 76.8 84.3 86.6 81.7 84.5 82.7 77.7 82.0 84.0
- Interest Payments 21.7 30.2 25.0 20.2 19.6 20.5 20.6 22.8 24.0
- Subsidies 3.5 3.0 4.0 8.7 13.8 12.9 6.3 6.6 4.9
- Civil Administration 1.8 3.3 7.0 6.5 6.2 5.2
Education 10 11 9
Health 3 3 3
18
Table 6: Social Sector and Infrastructure Expenditure (as % of
GDP)
Items 1990s 2001-07 2008-12
19
What is Fiscal Deficit?
− Fiscal Deficit = R-E if R<E
− Fiscal Surplus = R-E if R>E
* Definition of revenue, expenditure and budget deficit are not consistent with
earlier periods. Consistent budget deficit for the years 2013-14 and 2014-15,
according to independent economists, are respectively 8.6 percent and 8.4 percent
of GDP.
22
♦ Financing Fiscal Deficit
Financing
External Domestic
Non-
Banks
Bank
Privatization
Commercial
SBP
Banks
23
Table 8: Financing Fiscal Deficit (as % of fiscal deficit)
24
FISCAL RESPONSIBILITY AND DEBT LIMITATION ACT
2005
Five key elements of the Act 2005
– Public Debt should not be more than 60% of GDP by 2012-13
– Public Debt should be reduced 2.5 percentage points of GDP
each year
– Revenue Deficit be eliminated by end-June 2008 and maintain
surplus thereafter.
– Government will not provide guarantee to the borrowing of the
PSEs by more than 2.0 percentage points of GDP in any given
year.
– Expenditure on Social Sector and Poverty related programs will
not be less than 4.5 percent of GDP in each year
Expenditure on health and education should be doubled in
percentage of GDP by 2012-13
25
WHAT IS DEBT ?
• When a government spends more than the revenue it
collects, it borrows from various sources to finance the
budget deficit. The accumulation of past borrowing from
domestic sources is the domestic debt.
• Similarly when a country imports more goods and services
than it exports, it borrows from various sources to finance
current account deficit. It also borrow externally for debt
repayment and to maintain a certain level of FE reserves.
The accumulation of all such past borrowing is the external
debt.
26
TYPES OF DEBT
• Public Debt
• Rupee Component
• Dollar Component
• External Debt
27
IS DEBT CREATION BAD FOR THE ECONOMY?
• Borrowing domestically or abroad is a normal part of economic
activity.
• As long as the borrowers can earn a higher economic/social rate
of return than the cost of invested funds, creation of debt is not
a burden.
• Debt-servicing problems arise when the debt carrying capacity
of the country does not increase commensurate with the
increase in its debt servicing liabilities.
(The debt carrying capacity is defined as the ability of a country
to service its external liabilities within an orderly and stable
macroeconomic framework)
28 (Continue…)
IS DEBT CREATION BAD FOR THE ECONOMY?
• Short-term borrowing for longer-term projects can lead
to serious cash flow problems.
• Countries most often run into difficulties because the
borrowed funds are directed toward wasteful or low
economic return projects.
29
WHAT CAUSES PUBLIC DEBT TO RISE?
Causes Consequences
Persistence of Large
Fiscal and CADs Major Source of
Macroeconomic
Instability
Sharp Depreciation
of Exchange Rate Rise
Poor Growth
in Performance
External Borrowing to
Build Forex
30
PAKISTAN SUSTAINED A VERY LARGE BUDGET DEFICIT IN THE 1990S
AND DURING 2008-14
Overall fiscal deficit (% of GDP)
Source: SBP
32
PUBLIC DEBT MORE THAN TRIPLED IN THE LAST SEVEN
YEARS
Public Debt (Billion Rs)
33
TRENDS IN EXTERNAL DEBT AND LIABILITIES
1948-60 1,45 -
1960-70 2,814 -
Note: Pakistan accumulated $42.215 billion (or 65%) external debt and liabilities in
the decade of the 1990s and in the last eight years. In other words , 2/3rd
accumulation of debt took place in 18 years and 1/3rd ($23.150 billion) and in the
remaining 49 years. 36
LOAN CONTRACTED BY PPP AND PML (N) GOVERNMENTS
DURING 2008-09 TO SEPTEMBER 2015-16
Year PPP PML (N)
Bilateral/ IMF Bilateral/ Multilateral IMF
Multilateral
FY2009 4,797.9
FY2010 4,564.7 7,400
FY2011 2,738.1
FY2012 4,018.1
FY2013 1,277.6
FY2014 14499 6,640
FY2015 3,633
FY2016 3891
Total 17,396.4 7,400 22,023 6,640
24,796 28663
37
TABLE 1: TRENDS IN EXTERNAL DEBT AND LIABILITIES AND PUBLIC DEBT
Year External Debt & Liabilities Public Debt
Year Billion $ As Multiple of OLR Billion Rs As % of Revenue
1996-97 33.6 29.4 2037 530
1997-98 33.6 35.9 2338 544
1998-99 37.8 27.4 2946 628
1999-2000 36.6 36.7 3018 589
2000-01 35.8 21.2 3489 631
2001-02 35.6 8.2 3510 563
2002-03 34.8 3.6 3621 502
2003-04 34.7 3.3 3787 479
2004-05 35.4 3.6 4063 451
2005-06 37.2 3.4 4357 405
2006-07 40.3 2.8 4803 370
2007-08 46.2 5.3 6040 403
2008-09 52.3 5.5 7631 412
2009-10 61.6 4.7 8890 428
2010-11 66.4 4.2 10680 474
2011-12 65.5 6.0 12652 493
2012-13 60.9 10.1 14321 486
2013-14 65.4 7.2 16389 451
2014-15 65.2 4.8 17819 453
Years
2011-12 53.6
2012-13 54.3
2013-14 41.9
2014-15 37.6
Forecast
2015-16 69.8 6.6 23.0 303.5 28.7
2016-17 77.2 7.3 23.7 325.7 30.8
2017-18 85.4 8.1 24.5 348.6 33.1
2018-19 95.5 9.1 25.5 374.5 35.7
2019-20 104.6 9.9 26.8 390.3 39.9
46
EXTERNAL FINANCING REQUIREMENT (BILLION $)
Year Debt Current Account Total
Servicing Deficit
47
LIKELY FINANCIAL INFLOWS (BILLION $)
Year Traditional Chinese Foreign Total
Donors Financing Investment
48
FINANCING GAP (BILLION $)