Budget to focus on fiscal consolidation and sustaining growth: Miftah Ismail

Finance Minister Miftah Ismail said on Tuesday that the government of Pakistan has prepared a progressive budget which will focus on fiscal consolidation while sustaining 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 at 4-6%.

“Moreover, a targeted subsidy for poor strata of society will be announced,” he said. “We will cover nearly one-third Pakistanis in the subsidy.”

‘GDP growth not difficult’

He stressed that GDP growth was not difficult for Pakistan given the 2.5% population growth but noted: “the minute we attain 4.5-5% growth, we run into a current account deficit. When current account deficit rises, the economy dries up and the lower income group loses jobs.”

Therefore, the growth model of the country is imperfect, he said.

‘Our problem is low exports’

He also noted that the State Bank of Pakistan’s Temporary Economic Refinance Facility (TERF) benefited the rich class and propped up imports.

“Besides the import of machinery, the shipments of consumer goods rose as well,” he said, lamenting that Pakistan focused only on import substitution and completely ignored export promotion.

Giving examples, he said East Asian countries grew through export promotion and the government wanted to implement this model in Pakistan as well.

“Our problem is not massive imports, it is low exports,” he said. “Nearly 80% of manufacturing is done for domestic consumers and just 20% for export purpose.”

Citing figures, he stated that the nation consumed 3.5 million tons of edible oil whose price has skyrocketed in the global market.

He voiced fear that Pakistan’s edible oil imports would cost $8 billion next year if the global price failed to recede.

“I asked foreign companies to begin exports from Pakistan and in return, we will ensure regionally competitive export tariff,” he said.

Current account deficit

Talking about the achievements of the government, he stated that Pakistan reengaged with China, Saudi, UAE and other nations for assistance. China has rerolled $2.4 billion loan at a reduced interest rate, he said, adding that the rescheduling was withdrawn at the end of March 2022.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 reroll its loan in December 2022 and the country is also expected to enhance its oil credit line from $100 million to $200 million.

He cited that the current account deficit would amount to $12 billion next year. “We can reduce it further but it will stall the economy,” he said.

Moreover, he projected that State Bank of Pakistan’s foreign exchange reserves would rise to $12 billion in the next few days when China transfers money to Pakistan.

“The reserves should increase by $8 billion next year to stand at $18 billion,” he said. He stated that increase in fuel price by Rs60 was a difficult decision but it was needed.

PTI had agreed with IMF to impose a levy of Rs30 on petrol and diesel and slap 17% sales tax. This would have taken petrol price to Rs300 per litre, he said.

State of economy

Miftah said that when PM Shehbaz Sharif assumed office, Pakistan had the third highest inflation among all major economies of the world.

“In the past four years, 20 million people entered poverty while 600,000 became unemployed,” he said. “Every year, 1.8-2 million people join labour market of Pakistan and 5-6% economic growth can absorb them.”

Pakistan’s debt for FY22 amounts to Rs5.6 trillion and the current leadership is making efforts to reduce it to Rs5.2-5.3 trillion.

“We left debt of Rs1.65 trillion per year deficit but the past government raised it by 3.5 times,” he said. “Pakistan entered into an agreement with the International Monetary Fund (IMF) last December and signed a deal in February that promised primary deficit at Rs25 billion. In reality, it will amount to Rs1.33 trillion which is out by 5,400%.”

He highlighted that the Pakistan Tehreek-e-Insaf government took loans worth Rs5.18 trillion in almost four years while the previous PML-N government took 2.13 trillion in 5 years. He stated that from 2013-2018, the government of Pakistan used debt to establish power plants, LNG terminals and motorways and develop Gwadar.

PML-N left Rs1.06 billion in circular debt in the power sector which has surged to Rs2.5 billion now, he said. In addition, there was no circular debt in the gas sector and today, Rs1.5 billion debt exists under that head, Ismail said.

“The power sector will be devastated if we do not undertake vital reforms,” he said.