Federal Minister for Finance, Muhammad Ishaq Dar, stated on November 11 2013 in an exclusive interview, with a private TV channel, that “Pakistan would soon become the 11th biggest economy due to comprehensive measures being taken by the government”. He further elaborated that the international economic rating agencies were demonstrating an optimistic outlook towards the country’s economy and have upgraded Pakistan’s ratings.
The fiscal budget of Pakistan for the fiscal year 2013-2014 had a total outlay of 3591 billion rupees and was designed to achieve a growth rate of 4.4% over the next fiscal year. The budget largely focused on the country’s energy crisis, providing incentive to investors to expedite economic activity, reduction of non-development expenditure, creation of new employment opportunities and development of infrastructure. The budget has been termed by the government as “an investment and business friendly budget”.
Ishaq Dar expressed the view that assistance from International Monetary Fund was necessary to pay back the $9 billion loan that the country had incurred by the previous regimes. This was vital to be paid for, as the country faced the risk of defaulting on its outstanding obligations. Furthermore, he added, this recent loan paved way for various other low-cost international loans for development projects. He said that Pakistan’s debt until 1999 was Rs2946 billion, but in previous regimes after 1999 it piled up to more than Rs. 12,000 billion.
As Prime Minister Nawaz Sharif had stated in his budget speech, PML-N government “is inheriting a broken economy”. The growth rate averaged less than 5% in the last 5 years while inflation averaged around 13% in the last four decades. Exchange rate now stands at Rs 107 to the dollar, whereas the exchange rate was Rs 62 to the dollar in the previous fiscal year, representing a precipitous 60% rupee devaluation against the dollar.
State Bank reserves fell from $11.1 billion to $6.3 billion despite IMF support. Circular debt stands at more than Rs. 500 billion while the average deficit was recorded at 7% in the last 5 years. The country’s indebtedness increased by 2.5 times as public debt which stood at Rs.5602 billion in 2008 is now projected to rise to Rs.14282 billion in 2013.
The Prime Minister in his budget speech outlined the economic vision and government’s initiatives to rebuild the economy. Priority was given to self-reliance and economic sovereignty. Moreover refusal of multilateral handouts and foreign goodwill would be encouraged.
The private sector was accorded top priority in developing to become the “lynchpin of economic activities” with market regulation to ensure a competitive environment. Government intervention was justified only where investments were too large for the private sector or in areas such as education, welfare, health, large infrastructure projects and especially the power sector – which is still the biggest hurdle against economic development. He also stressed the need to end the culture of exemptions and concessions in the tax system, highlighting the importance of equal sharing of the burden by all segments of the population. The government defined austere budget parameters which also prioritised the poor and weaker segments of the population.
However, once the budget was announced it was severely criticised for being “anti-poor” with no relief whatsoever for the poor and working class. It also drew criticism over the increased taxation, especially a significant rise in the General Sales Tax. Ishaq Dar, however, defended the budget, stating that the target increments were set at Rs 475 billion whereas imposing GST and other such measures raise tax revenue of Rs 202 billion. The remaining difference of Rs.273 billion would be met by increasing the tax net. In accordance with these statistics, Ishaq Dar claimed that 500,000 people who earlier were evading taxes will now have to pay direct taxes, which will translate into an unprecedented increase in tax collection. Ishaq Dar further added that revenue collection increased by 18% whereas the Federal Board of Revenue is still determined to achieve its target of 28% revenue growth for the present fiscal year.
Even though there were some relief measures for the common man such as a 10% increase in salaries of government employees, 10% increase for pensioners, minimum wage raised to Rs.10000 per month and income tax rate for the salaried class also reduced but, according to critics, the significant rise of GST outweighed the relief measures.
A meeting took place between Economic Coordination Committee (ECC) and Federal Cabinet in the presence of Finance Minister Ishaq Dar on November 13, 2014. This meeting also provided an overview of Pakistan’s economic performance during the initial part of the current fiscal year. Foreign remittances are reported to have reached $5.2 billion in the first quarter of the FY 2013-2014 which is actually 6.3 % higher than the corresponding period last year, while exports grew by 9%. FDI also increased by 85% and portfolio investment by 100% in this first quarter. Large-scale manufacturing posted a growth of 8.5% in June-September. “This speaks volumes about the seriousness of the PML-N government in the economic uplift of the country”, stated the Finance Minister.
Further elaborating on spiraling inflation in the country due to the increase in international fuel prices, Ishaq Dar said, “ The government is sensitive to the hardships of the people and is on average providing a subsidy of around Rs. 22 billion every month just to lessen the burden of the rise in fuel prices on the common man.”
Earlier, in his exclusive interview with a private channel, Ishaq Dar also stated that in the last 15 months, electricity tariffs were not increased by previous regimes for political advantage. This has impacted on the electricity price hike. He further confirmed that the government had ensured the payment of the circular debt which amounts to a whopping Rs.503 billion. He also asserted that 1700MW electricity would be added to the national grid with a further addition of 8500MW of electricity next year.
In addition to the 6000MW coal projects in Gadani, the government will add 1000MW of wind and 969 MW of hydroelectricity in the next three years. On the guidance of the Prime Minsiter, the government was also providing subsidies worth billions of rupees to the domestic users of electricity. Commercial users will be receive an exemption from the price hike up to 200 units. The Finance Minister further stated that the government was providing subsidies worth Rs.175 billion on diesel. He announced the construction of two mega water sector development projects: Dasu and Diamir Bhasha Dams which would provide significant help in overcoming the country’s water and energy deficits. Moreover, wind, biogas, solar coal and hydroelectric projects have also been announced.
Ishaq Dar confidently claimed that the country’s economy was on its way to economic recovery adding that in the last months, prices of sevem items were reduced, prices of 33 basic commodities were sustained while that of 13 items was increased.
At the meeting, a decision was taken to form a committee under the chairmanship of the Secretary, Ministry of Water and Power alongside representatives of ministries of Industries and Production and Petroleum and Natural Resources, Commerce, Nepra and Ogra which will be responsible for creating a viable plan for building capacity for energy efficiency audits and introducing transparency.
Ishaq Dar elaborated saying, “We shall start the process of conducting energy efficiency assessment from the public sector and will initiate awareness campaign for the private sector to use methods that could save energy and help bring the country out of its present energy crisis.”
However, the ECC remained undecided on implementing measures to provide relief to the inflation-stricken population. It also remained evasive on deciding to ban export of tomatoes and onions as suggested by Ministry of Food and Security. The ECC directed the Ministry of Food and Security to form a committee to monitor the prices and deferred the matter till next meeting.