KARACHI (July 29 2009): Dr Shahid Hasan Siddiqui, an eminent economist and Chairman Research Institute of Islamic Banking and Finance has warned that if the existing economic policies are continued, Pakistan will not be able to meet its external debt repayment obligations in coming years and could therefore, face yet another economic crisis in FYI 2.

He said this while delivering a lecture at Pakistan German Business Forum at a local hotel on Tuesday. He observed that sustainable GDP growth rate of even 5 percent per annum is not likely to be achieved in coming years in the wake of existing economic policies based on feudal culture, tough, imprudent and contradictory conditionalities of IMF, Pakistan's over-enthusiastic role in the so-called war on terror and the enhanced pace of drone attacks by US on Pakistan's territory.

He said that Pakistan's national savings - GDP ratio is 14 percent whereas the corresponding ratio of developing Asia is 45 percent. Similarly, tax revenues - GDP ratio of Pakistan is 9 percent whereas many other countries in the region are recovering taxes between 14 and 18 percent of GDP.

He said that Investment - GDP ratio of Pakistan is 19 percent whereas corresponding ratio of developing Asia is 40 percent. He was of the firm opinion that to achieve a sustainable GDP growth rate of even 6 percent per annum, Pakistan must take revolutionary measures on war footings to enhance these ratios significantly with immediate effect.

Dr Shahid Siddiqui said that Pakistan's economy has suffered a loss of about 40 billion dollar in the post - nine-eleven era due to war on terror but Pakistan has been compensated up to the extent of only 12 billion dollar meaning thereby that Pakistan's losses are to the order of 28 billion dollar or Rs 2,300 billion. "If even the losses of 8 billion dollar or so expected to be sustained by Pakistan in 2009 are not fully compensated by US, Pakistan's economy will face serious setbacks," he observed.

Reviewing the performance of the economy in FY2009, Dr Shahid said that the over-all performance of the economy during FY09 has been worst in the 62 years history of Pakistan. The GDP recorded a growth of about 2 percent in FY09. This growth rate could well be the lowest in last 38 years after the fall of East Pakistan.

He severely criticised the regressive taxation policy of the government and posed a question "Why 170 million people of Pakistan should bear the burden of high tax rates and of surcharges including Petroleum Development Levy year by year and now petroleum levy due to the inability of the successive government to levy and recover due taxes at fair rates through an equitable taxation system and if the government cannot do so or does not want to do so, who else would do it for us?"

He said that the decade of 1990s has been declared as the lost decade while despite tall claims of economic miracles, the performance of economy during Musharraf era can at best be termed as negative growth. It is therefore, a matter of serious concern that the casualty of IMF's stabilisation programme in FY10, FY11 and FY12 will again be the GDP growth rate and 23 years of the nation would thus be lost.

To avoid risk of yet another economic meltdown, which is potential risk in FY12, Pakistan must not only tone down its role in the US-led war on terror but must also design and implement a new economic policy replacing the existing stabilisation programme of IMF observed Dr Siddiqui. He suggested that the new economic policy designed with structural changes must include the following while the budget for FY10 will have to be revised:

i) By FY10, the tax GDP ratio must be enhanced to 14 percent with the proviso that maximum rate of GST must be reduced from 16 percent to 5 percent on consumption items and all taxes/levies etc, on petroleum products be withdrawn.

The tax evasion should be checked and the law should be framed to ensure that all income of Rs 200,000 and above in a financial year from whatever source is subjected to income tax. The number of income taxpayers should be enhanced to at least 70000 in FY10. This could then generate tax revenues of about Rs 2000 billion in FY10 instead of Rs 1,372 billion. This would be possible if government establishes its writ in this direction.

ii) All members of parliament, rulers, economic managers and senior civil & military bureaucracy must be required to transfer funds from their foreign currency accounts (FCAs) with banks abroad in four weeks time to Pakistan. They should then be required to give a declaration that they or their dependent family members are not maintaining an account abroad in excess of 1000 dollar. This will remove the fears of overseas Pakistanis regarding possible freezing of FCAs. The overseas Pakistanis should then be offered higher rates of interest on FCAs of maturity of one year and above.

iii) The World Bank has some time back offered to assist Pakistan in the repatriation of plundered funds transferred abroad earlier from the country. This offer must be accepted.

iv) Unproductive expenditures must be reduced by 35 percent in FY10. v) Banks should be directed to pay rates of returns to S.B. account holders not less than inflation rate while their spread must not exceed 3.5 percent. vi) Foreign Direct Investment in the banking sector through privatisation or merger/acquisitions and in telecom sector should not be allowed. vii) Pakistan should come out of the IMF programme possibly before the end of current year and no new loan should be taken from IMF.

Earlier, President PGBF, Mr. Salahud Din Ahmed in his welcome address said that keeping in view of the financial meltdown in Pakistan due to the global financial crises, PGBF intends to bring awareness and provide the last information about Pakistani economy to its members and said that it is the intention of PGBF to hold a seminar on meaningful subjects.