Budget focused on fiscal consolidation and sustaining growth: Miftah Ismail – Pakistan
Finance Minister Miftah Ismail said on Tuesday that the Pakistani government has prepared a phased budget that will focus on fiscal consolidation while supporting GDP growth and controlling inflation.
Addressing the “Pre-Budget Seminar on Business, IT and Agriculture” in Islamabad, he said Pakistan would reduce its budget deficit to 5% from the current 8-9% while the economy will grow by 4-6%.
“Additionally, a targeted subsidy for poor sections of society will be announced,” he said. “We will cover nearly a third of Pakistanis in the grant.”
Government to prioritize agriculture and exports in next budget: Miftah
“GDP growth is not difficult”
He pointed out that GDP growth was not difficult for Pakistan given the population growth of 2.5%, but noted: “As soon as we reach 4.5-5% growth, we run into to a current account deficit. When the current account deficit increases, the economy dries up and the low income group loses jobs.
Therefore, the country’s growth model is flawed, he said.
“Our problem is low exports”
He also noted that the State Bank of Pakistan’s Temporary Economic Refinancing Facility (TERF) benefits the wealthy class and supports imports.
“Besides the import of machinery, shipments of consumer goods have also increased,” he said, lamenting that Pakistan only focuses on import substitution and completely ignores export promotion.
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Giving examples, he said that East Asian countries have developed through export promotion and the government also wants to implement this model in Pakistan.
“Our problem is not massive imports, it’s weak exports,” he said. “Nearly 80% of manufacturing is for domestic consumers and only 20% for export purposes.”
Citing figures, he said the country consumed 3.5 million tonnes of edible oil, the price of which skyrocketed in the world market.
He expressed concern that imports of edible oils from Pakistan could cost $8 billion next year if the world price does not fall.
“I have requested foreign companies to start exporting from Pakistan and in return we will ensure regionally competitive export tariffs,” he said.
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Current account deficit
Talking about the achievements of the government, he said Pakistan has re-engaged with China, Saudi Arabia, UAE and other countries for help. China renewed a $2.4 billion loan at a reduced interest rate, he said, adding that the rescheduling was withdrawn at the end of March 2022.
Saudi Arabia will also renew its loan in December 2022 and the country is also expected to increase its oil credit line by $100 million to $200 million.
He cited that the current account deficit will rise to $12 billion next year. “We can reduce it further, but that will slow down the economy,” he said.
Furthermore, he predicted that the foreign exchange reserves of the State Bank of Pakistan will reach $12 billion in the coming days when China transfers money to Pakistan.
Miftah advocates a strict monetary policy
“Reserves are expected to increase by $8 billion next year to $18 billion,” he said. He said raising the price of fuel by Rs60 was a difficult but necessary decision.
The PTI had agreed with the IMF to impose a tax of 30 rupees on petrol and diesel and to impose a sales tax of 17%. This would have raised the price of petrol to Rs 300 per litre, he said.
State of the economy
Miftah said that when Prime Minister Shehbaz Sharif took office, Pakistan had the third highest inflation among all major economies in the world.
“Over the past four years, 20 million people have fallen into poverty while 600,000 have found themselves unemployed,” he said. “Each year, 1.8-2 million people join Pakistan’s labor market and economic growth of 5-6% can absorb them.”
Pakistan’s FY22 debt stands at 5.6 trillion rupees and current leaders are working to reduce it to 5.2-5.3 trillion rupees.
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“We left a debt of 1.65 trillion rupees a year in deficit, but the previous government increased it by 3.5,” he said. “Pakistan reached an agreement with the International Monetary Fund (IMF) last December and signed an agreement in February which promised a primary deficit of 25 billion rupees. In reality, it will amount to 1.33 trillion rupees, or 5,400% less.
He pointed out that Pakistan’s Tehreek-e-Insaf government had taken out loans worth Rs.5.18 trillion in almost four years, while the previous PML-N government had taken out Rs. 5 years. He said that from 2013 to 2018, the government of Pakistan used debt to establish power stations, LNG terminals and highways and develop Gwadar.
PML-N left 1.06 billion rupees of circular debt in the electricity sector, which has jumped to 2.5 billion rupees now, he said. Also, there was no circular debt in the gas sector and today a debt of Rs 1.5 billion exists in this respect, Ismail said.
“The electricity sector will be devastated if we do not undertake vital reforms,” he said.