Siraj Qasim Teli calls for 4% policy rate cut, as business experts react to Economic Survey 2020

KARACHI: Industrialist Siraj Qasim Teli has called for yet another 4% policy rate cut from the State Bank of Pakistan (SBP) as businesses across Pakistan continue to face major hits due to the coronavirus-hit economy.

Reacting to the Pakistan Economic Survey released earlier today, business and tax experts voiced their views and concerns in a live session on Geo News.

Teli, the chairperson of the Businessmen Group (BMG) who has formerly been associated with the Karachi Chamber of Commerce and Industry (KCCI), said it was "all about survival during these times of crisis".

He said whatever the Economic Survey presented was quite immaterial to the business fraternity as the coronavirus pandemic has changed the world completely. The facts and figures presented by Adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh seem irrelevant, he added.

"Therefore, the government should roll out relief packages across the board. Term it a 'relief budget'," Teli noted. Speaking of a meeting with Shaikh a couple of days ago, he said: "We have suggested to the ministry to reduce taxes such as the sales tax, income tax, and the withholding taxes so that the people can save more money.

'Who owns the hot money?'

"Businesses of every size are affected due to the pandemic and so the government should reduce utility bills for entrepreneurs and business community to float their businesses during these hard times, These incentives should be given for at least one year," he stressed.

The industrialist reiterated the business community's demand to cut the policy rate, which currently stands at 8%. "To date, we are stressing that the interest rates should be brought down to at least 4%.

"Just as the government has permitted the influx of undocumented money in the construction industry, it should allow the same for all the sectors since the undocumented economy is double the size of Pakistan's actual economy," Teli added.

Underscoring how there was no doubt that the economy was "already in the pits" before the global pandemic had hit Pakistan, he criticised the incumbent government for failing to take any effective measure in terms of boosting investments in the country or fixing the interest rate.

"Who owns the hot money," he asked. "Usually, such amounts in bonds, etc., come from the UK, the US, and Canada but these amounts were from Cayman Islands.

"Prime Minister Imran Khan should also constitute a commission for hot money so that the industries are not affected with black money," the businessperson said, adding that it was foreseeable that "we will lose a lot of lives in order to save the sinking economy".

Tax target 'highly ambitious,' 'unattainable'

On the other hand, Karachi Tax Bar Association (KTBA) Secretary-General Zeeshan Merchant slammed the current tax target of Rs4.9 trillion, saying it was "highly ambitious and seems unattainable" in light of the ongoing situation.

"In comparison to the past six months before the pandemic, we had increased our tax collection 20% but the picture is now quite different due to the coronavirus outbreak," said Merchant, also an advocate of the high court.

"Since the virus shows no signs of being eliminated by July or August, the industries will not generate expected revenues this year and the next," he added.

"This is an emergency situation not only for the business community but for the government as well" and both sides should deal with it strategically, he opined.

Praising the construction industry bailout package, the advocate said: "To implement it effectively, we need to expand our tax data base system" since the target amount could not be generated with just a million taxpayers.

Referring to the SBP's decision not to take any further loans in the future, Merchant said reducing the current account deficit would help Pakistan in the long run.

Lower global oil prices, too, would be advantageous to the country since the overall prices of international goods had fallen due to the pandemic, he noted.

Tax expert backs call for lower interest rate 

Chartered accountant and tax expert Ashfaq Yousuf Tola was of the view that money circulation across Pakistan had already been bumped up a lot with printing of notes over the past year.

"This policy cannot exist for long. This is the first time that we reported negative tax revenue during past two years," Tola said, adding that the country had suffocated its businesses with highest interest rates.

Agreeing with industrialist Teli, he said the high interest rate and dollar penalty, as well as PM Imran's move to relax the lockdown to contain the coronavirus spread towards the end of Ramadan gave "a huge setback to the economy".

Pakistan's major importer China saw falling exports

Tola, who has been a member of the Federal Board of Revenue's (FBR) Tax Advisory Council in the past, mentioned that the World Bank's forecast for next year "would be proven wrong" in the coming days.

"If we do not impose a stricter lockdown in coming days, the economy will shrink by 2.5-3%. We will be pushed from recession to depression if we do not tighten our policies at the moment," he warned.

Interestingly, the government of Sindh has already started considering reimposing the lockdown to curb the rising number of coronavirus cases in the province, which houses Pakistan's financial capital of Karachi.

Tola explained how both Bangladesh and China had witnessed a nosedive in their exports.

"China is one of Pakistan's biggest importers," he said. "Where did we adjust their quantity factors? Our primary deficits have been curtailed but our long-term deficits and dues have not.

"In April we had said our economy will shrink 3.8%," he added.

Investment opportunity for Pakistan

KCCI Senior Vice President Khurram Shahzad voiced similar concerns of a contracting economy. "We improved our exports and managed to improve foreign reserves over the past year but we controlled our imports so much that it affected our growth and led to money devaluation.

"Our economy has shrunk. Large-scale industries have suffered a setback — especially the textile sector due to the locust attack in recent times," he noted.

According to Shahzad, the current time was an investment opportunity for Pakistan as utility and production costs, as well as taxes, were quite low at the moment.

"Businesses can prosper with proper strategy and plan," he noted.

Pakistan's economy shrinks 0.38%

Earlier today, Shaikh, the prime minister's finance adviser, had presented the Pakistan Economic Survey 2019-20, which indicated that the country's economy had shrunk 0.38% as the coronavirus pandemic wreaked havoc.

The adviser highlighted the state of the Pakistani economy in the outgoing fiscal year, noting that the virus outbreak had dealt a serious blow towards the last quarter of the year.

Shaikh revealed that the GDP was expected to contract 0.38% in FY2020 despite a 2.67% growth in the agricultural sector. However, the industrial and services sectors experienced a 2.64% and 0.59% squeeze, respectively, this year.

Speaking of the measures taken by the PTI government to arrest the ballooning internal and external imbalances, he praised both PM Imran and Pakistan Army Chief General Qamar Javed Bajwa for their role in managing expenditures.

Global issues hampered int'l economy

Noting that the state had cut down its expenditures, he highlighted that at the same time, public spending had risen.

The report also made note of several developments in the global economy this year. It noted that the Hong Kong protests had triggered the worst crisis in Asia’s biggest financial center, while India's attempts at annexing Kashmir had led to suspension of trade between Islamabad and New Delhi and the UK’s exit from the EU — Brexit — had changed the European market irrevocably.

Meanwhile, the US-China trade war continued to cast a pall on the global economy, while international oil prices slumped. As players around the world navigated these challenges, the novel coronavirus disrupted supply chains and brought economic activity to a standstill.

The report’s authors noted that the coronavirus pandemic had essentially wiped out any economic performance of any economy due to the financial and health crises it sparked, not to mention the resultant collapse of commodity prices.