Business responds to Sharif appeal to retire debt

Pakistan's business community dug deep and came up with 55 million dollars to donate to the prime minister's debt retirement fund, newspapers reported on Thursday.

Prime Minister Nawaz Sharif launched an appeal last Sunday for money to pay off Pakistan's crippling deficit that devours roughly one third of the country's 14 billion dollars (574 billion rupee) annual budget.

"I have got an unprecedented response from the nation to my debt retirement programme and it would help put the economy back on track," the English-language daily newspaper, The News, quoted Sharif as saying.

"I am ready to conduct tours all over Pakistan to collect contributions for this noble cause to revive the economy," he said.

A single contribution of 15 million dollars was received from a Karachi-based businessman. Several other sizeable contributions came from other industries.

Sharif, who swept the polls in the February 3 general elections, inherited a shattered economy from Benazir Bhutto who was thrown out of power on charges of rampant corruption and incompetence.

Bhutto has denied the charges and so far no charges have been brought against her.

According to an International Monetary Fund agreement which Pakistan's interim government signed more than one month ago, Sharif's government has to bring the deficit down to four per cent from a current 5.6 per cent. He also has to broaden the tax base, a difficult job in a country where barely one million people pay taxes.

Few of the wealthiest in Pakistan pay taxes, including most of the country's leading politicians.

Sharif has promised to revamp the country's tax collection system which is considered to be rife with corruption.

Pakistan's new commerce minister Ishaq Dar said the government expects to raise roughly one billion dollars (41 billion rupees) from its debt-retirement fund raising appeal, the state-run news agency, the Associated Press of Pakistan, said.

"The sum would ease the pressure on the foreign exchange reserves which were alarmingly depleted," he was quoted as saying.

The reserves were roughly 600 million dollars when Bhutto's government was sacked.

Earlier, Prime Minister Nawaz Sharif has formed a small cabinet, banned the import of luxury items, and opened a bank account to receive donations toward retiring the country's crippling debt.

In an ambitious development plan published in national newspapers on Tuesday, Sharif ordered short- and long-term plans to revamp an antiquated public transport system and dilapidated road system.

A rich businessman, who owns lucrative steel refineries, Sharif has issued a plea to Pakistanis living outside the country to invest some of their wealth into developing their impoverished homeland.

He said all foreign currency accounts in Pakistan will be exempt from taxation.

"All citizens resident in Pakistan or abroad, who hold foreign currency accounts, shall continue to enjoy immunity against any inquiry' from any tax collection agency in the country,'' the state-run news agency, Associated Press of Pakistan reported.

On Tuesday, Sharif called 500 of the country's top business people to the federal capital Islamabad to "seek their proposals for the revival of the economy, increase in industrial output, and to enhance exports,'' a government release said.

The day-long brainstorming meeting is expected to concentrate on ways of reducing the mountains of red tape and government bureaucracy that is notorious for giving potential investors headaches.

Sharif's scheme to raise money to retire Pakistan's hefty debt that devours roughly one-third of the annual budget of 14 billion dollars is paying off, says the English-language daily newspaper The News.

According to reports from all over the country, there has been an "enthusiastic response to the prime minister's appeal,'' The News reported.

Pakistan's military has offered to do its share, donating one day's salary to the debt-retirement cause, an army spokesman said. The army brass will give one month's salary, he said on the usual condition of anonymity.

The prime minister faces an economy in tatters, a tax system needing urgent reform and debts that threaten to smother his new administration.

Sharif's government will need to make broad structural reforms if the economy is to stabilize.

His party's commanding majority in the National Assembly will likely bring him unprecedented political influence. But binding financial agreements inherited from a caretaker administration and a hefty build-up of state debts will keep him on a tight fiscal leash.

When Bhutto's government was dismissed, foreign exchange reserves stood at a paltry 638 million dollar. Interim authorities fought off a balance of payments crisis by turning to foreign commercial banks for more than one billion dollar in short-term loans at high interest rates.

Pakistan's external debt now stands at Pakistani Rs 1.2 trillion ($30 billion), with repayments expected to gobble up 6 per cent of the 1997 budget of 500 billion rupees (12 billion dollars).

The interim government, which took over after Bhutto's dismissal and organised the elections earlier this month, locked the new administration into strict financial agreements with the international monetary fund.

Sharif's administration must keep the budget deficit at 4 per cent or less, and faces severe limitations on any further borrowing from commercial banks or foreign governments.

Few analysts here believe the government will be able to bring the deficit down, given the huge state debts. The current budget deficit is around 6.3 per cent of GDP, according to official statistics. Private analysts peg it at closer to 5.5 per cent.

The International Monetary Fund also wants economic growth kept at 5 per cent or higher. GDP growth last year was 6.1 per cent. Javed Burki, who took leave from a World Bank job to act as adviser to the caretaker government, predicted last week that GDP growth would be no higher than 5 per cent this year.

The fiscal diet order by the caretakers and the IMF is designed to limit government spending and force the new administration to acquire funds through taxes instead of loans.

Failure to keep to the policy will result in the cancellation of loan disbursements that are keeping the government afloat. The IMF withheld two tranches of 80 million dollar each last year because it was unhappy with Pakistan's economic performance and planning.

Sharif's party initially gave indications it would seek to renegotiate the agreement. But Islamabad-based foreign bankers say quick intervention by the IMF soon had them sounding a different tune.

Sartaj Aziz, secretary-general of Sharif's Pakistan Muslim League, said he saw no need for a re-negotiation.

Of paramount importance to fix the economy in the long run will be the restructuring of Pakistan's tax system. The country of 130 million has only an estimated one million tax payers.

Broadening the tax base will be unpopular among the private sector, where exemptions leave many businesses in the clear.

The agricultural sector, for example, makes up 25 per cent of Pakistan's gross domestic product of 61 billion dollar, but last year accounted for only 50,000 dollar in taxes.

"This year we envisage a 2 billion rupee (48 million dollar) return from agricultural taxes, but even that is peanuts," said Ayesha Muzaffar, financial analyst at the Hongkong and Shanghai Bank's Islamabad office.

Analysts suggest Sharif raise cash and boost the private sector by speeding up privatisation, including the sale of stakes in two state-owned gas firms expected to earn the government 150 million dollars.

Sharif, himself a rich industrialist, is popular with business leaders and short-term financial indicators have been bullish. The stock market rallied by 13 per cent in the two weeks after his election victory.

"It is one of the main reasons the people voted for us their perception we can turn the economy around," Aziz said.

UNI