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LAHORE, May 19: Hoping that the GDP would grow at a higher rate than the targeted 4.5 per cent in 2002-03, Finance Minister Shaukat Aziz said on Monday the next budget would focus on four major areas to alleviate poverty and provide relief to the poor.
The minister said at a pre-budget seminar here the main focus would be on achieving a higher GDP growth that would decrease poverty and increase employment. For the purpose, the agriculture sector which accounts for 26 per cent of the GDP would be given top priority.
Second, he said, steps would be taken to boost the construction industry. “Banks have already taken several initiatives for accelerating growth in the construction activity that has recently been given an impetus by the increase in remittances sent by overseas Pakistanis.”
The escalation in the construction activity would revive different downstream industries. Besides, the development budget was being enhanced in the next budget to alleviate poverty.
Mr Aziz said the large-scale manufacturing and small and medium enterprises (SMEs) would also be taken care of. The textiles and engineering sectors had emerged as “engines of growth” in the large-scale manufacturing and SME sectors in the recent years. An investment of over $2 billion in the textile sector had given a new impetus to the exports.
Similarly, the local fan industry had done pretty well and its exports had grown after rationalization of import tariff on its raw materials, he added.
He said the government would take effective measures in the budget for sustained availability of credit to businessmen at low interest rates. Moreover, several decision would also be taken for removing irritants facing the businessmen, he maintained.
He said most irritants pertained to non-tax matters like inspections of factory or business premises by different provincial agencies. The provinces had already been directed to take steps to do away with such irritants.
He also reiterated the government’s resolve to do away with excise duty, reducing the number of federal taxes to three.
He said the economy was back on rails but it “takes some time to bring about a change.”
He claimed that the government would achieve all budgetary targets this year. “The large-scale manufacturing is up by 10.2 per cent, exports by 20 per cent in first three-quarters of the year, tax revenue collection by 15 per cent, trade deficit reduced, foreign debt reduced, per capita income risen, and current account deficit converted into huge surplus.”
“The economy has come a long way and has reached the take off stage, but there is no room for complacency as many challenges still lie ahead of us. If we succeed in handling these challenges and taking advantage of the opportunities, we will manage to check poverty and escalate growth to six per cent in the next two years.”
However, he said, the need for forging unity and evolving a national consensus could not be ignored to achieve the economic prosperity and growth.
He said he had a strong belief in the abilities of his fellow countrymen who were second to none in the world. “If we decide to shelve our differences, we can do miracles as Pakistan has immense natural and human resources,” he said.
The minister defended the economic data released by the government from time to time, saying it could be verified. The government had introduced transparency in every sphere of economy. It should be credited for issuing true debt figures for the first time, while the previous rulers had never mentioned swaps and deposits as debt though they were short-term and high interest loans.
SBP GOVERNOR: In his inaugural speech, State Bank of Pakistan Governor Dr Ishrat Husain said political stability, strong democratic institutions and local governments were essential for achieving fast economic growth.
“A slight perception that the political process is weakening or facing difficulties would derail the economy,” he warned.
He said the failure to fully implement institutional reforms in the civil services, judiciary, etc,. would seriously damage the (government) ability to translate its policies into action.
“Uncertain geo-political situation and tensions with neighbours may also prove detrimental to the flow of foreign investment, businesses and buyers to Pakistan,” he said.
He said all political parties agreed on poverty reduction, employment opportunities and stable prices. “Therefore, we should depoliticize our economic policies and give credit to Gen Musharraf, Nawaz Sharif, Benazir Bhutto and the MMA wherever it is due irrespective of their party affiliation.”
The SBP governor said the elected governments at the centre and the provinces should complete their full term and put the country back on track to achieve the six per cent growth rate target. If everything, including political stability, remained constant and no unforeseen adverse event took place, the growth rate in 2003-04 would range between 5 and 5.5 per cent and reach six per cent either in 2004-05 or 2005-06.
He conceded that power tariffs were unviable. However, he added: “With the commissioning of the Ghazi Barotha project, the thermal-hydel mix will change. As more thermal power plants will switch to natural gas from furnace oil, losses in transmission and distribution will be curtailed, and financial charges of IPPs cut down, the present power tariffs should come down and benefit the consumers.”
Dr Husain said the existing policies of privatization, tax administration reforms, and restructuring of the public sector institutions could be abandoned for gaining short-term political expediency. “These policy slippages will lead to the loss of credibility and continuity,” he said.
He said the economic strategy focused almost exclusively on the restoration of macro-economic stability, and neglected the economic growth rate, poverty reduction and employment creation.
He said the 9/11 events did help the country favourably but the economy had already began to show signs of stability well before that due to sound economic policies and good governance practices.
“The economic policies of the government had started yielding results in the form of improved macro-economic indicators long before 9/11. But there is no doubt that 9/11 helped the country in several ways,” he said.
The governor claimed that Pakistan had achieved the goals of the first phase of Interim Poverty Reduction Strategy Paper (IPRSP). “Now we are moving towards the next phase which is aimed at accelerating growth and making a dent in poverty,” he added.
He said the country had to seek the help of IMF and other donors because there was no alternative for any developing country wishing to get debt relief. “This was inevitable when the country was faced with major shocks such as a severe drought for three consecutive years, global recession, fallout of 9/11 and war in Afghanistan, mobilization of troops on the borders with India, and acts of terrorism and violence in the country.”
In the post 9/11 period, Dr Husain said, the most favourable thing to happen for the economy was dramatic improvement in home remittances through banking channels. “This has certainly helped build the foreign exchange reserves to the present level, stabilize the exchange rate and appreciated and provided liquidity to the money market.”
Had there been no 9/11 incident, the country’s exports would have been much higher than what they were at present, he added.
He, however, said Pakistan’s GDP was still the lowest in the region and the share of exports in the world market had declined to a paltry 0.15 per cent from 0.22 per cent.
“Poverty and unemployment are still staring us in the face, and basic services such as health, education, drinking water, and transport are available only to a narrow elite.”
Dr Husain said as a result of reduced debt servicing and a higher tax revenue collection, the size of public development allocation would go up from Rs130 billion to Rs155 billion in 2003-04 and Rsl80 billion in 2004-05, spurring private sector investment.
He said the tax revenues were projected to increase from Rs460 billion this year to Rs560 billion in 2004-05. Tax revenue has already increased by Rs100 billion or 33 per cent in the last three years. The projected increase of Rs100 billion in the next two years or 21 per cent (10 per cent annually) was very much in line with the past performance.
The large investments made in balancing, modernization and replacement by the textile industry during the last few years would start paying dividends in the form of better quality and value-added exports. “The share of the value-added products in the total textile exports has already surpassed by 60 per cent and it is likely to go up to 70 per cent by 2004-05,” he said.
He said the monetary and credit policies and banking sector reforms would begin yielding results and show some results in the form of expansion in credit to housing, consumer financing, SMEs, and agriculture sectors.
Public sector investment will go up from 4.7 per cent of GDP to 6.2 per cent in 2004-05 while private sector investment will remain at 9.4 per cent - not much different from the current level of 9.2 per cent.
ISHAQ DAR: Former finance minister and PML-N senator Ishaq Dar said the country’s economy had always remained a hostage to successive army interventions.
He claimed that Pakistan’s economy would have taken off in 2001 had the army refrained from removing the PML-N government in 1999.
Mr Dar challenged the present economic strategy of reducing the budget deficit and debt. “Japan and the US would never have made progress had they also followed the same strategy.”
For over a decade, the US has the highest budget deficit in the world and was the largest borrower but it was still the strongest economy.
He said political stability was more crucial for the economic growth. He defended the economic policies of the PML-N government, especially in the post-nuclear test years, and said the economy was about to take off when the military toppled the Nawaz Sharif government.
The Nations editor Arif Nizami, investment banker Jehangir Siddiqui, Aptma chairman Anjum Salim, and others also spoke on the occasion.
