EAG Cautions Against Risks of a Rise in Public Debt, Fiscal Deficit

The independent Economic Advisory Group has welcomed the federal government budget for announcing measures to boost industrial activity and export performance through wide scale tariff reduction but has cautioned against the aggressive optimism shown in the form of higher level of tax and non-tax revenue estimates.

The EAG expressed the hope that the loans extended by the central bank to help the private sector survive through the pandemic under TERF prove effective so that any risks of a possible default are minimized. With almost — earmarked for debt servicing in the FY 2022 budget, Pakistan is already facing a debt management crisis and any further complication can lead to economic hardships in the financial sector which can squeeze financial resources available in the system.

Referring to the prices of commodities globally, EAG noted that there is an upward surge in the commodity pricing worldwide and Pakistan will also experience the same as it is part of international food and agriculture markets. This may be further fuelled by government-imposed restrictions on the import of food commodities. Thus, high food inflation, which has become the main economic challenge, will come back eating into the purchasing power of consumers.

Comparing the budget with the commitments that Pakistan made earlier for structural reforms, the EAG noted that the budget shows no explicit commitment to reforms despite significant tariff reduction. The allocation for subsidies, for example, has been enhanced significantly. FY 2022 budget allocates — for subsidies, up by — % when compared with FY 2021.

EAG appreciates the on-going commitment of the government for direct cash transfer through Ehsaas programme and supports direct income support over a general intervention in the pricing which distorts incentives for both producers and consumers.

Commenting on the finance minister Shaukat Tarin announcement to “flood the markets” to reduce or maintain prices of food items, the EAG cautioned against such a move which may cause a rise in the fiscal deficit. As such, members of EAG do not favour government intervention to aggressively build commodity reserves.

The EAG has urged the government to stay committed to structural reforms and implement its commitments to privatization and subsidy rationalization. This, in addition to, an investment in human development can help achieve the goal of sustained economic growth with gains to be distributed across different income strata of the society.

The EAG has also expressed the hope that the fiscal efforts undertaken by the provincial governments should complement the federal government plans to boost industrial activity and exports through appropriate policies.

The Economic Advisory Group is an independent group of individuals drawn from economics, policy and the private sector that deliberates regularly on economic developments and shares its views with the government and the public. It is supported by PRIME, an independent think tank.

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