ISLAMABAD: Unfolding economic policy shift of the PTI government, Finance Minister Shaukat Tarin on Wednesday declared that neither the power tariff nor revenue target would be increased as the country fights a third wave of the Covid-19 pandemic. There has to be a balance in autonomy and accountability of the central bank while staying within the IMF programme through alternative means, he said.
At his first news conference after taking over as finance minister, Shaukat Tarin made it clear that three central themes of the IMF programme were not workable in the given circumstances and hence required space to gradually achieve those objectives. “They want stabilisation through strangulation, we want to move the wheel and achieve same objectives of higher revenue,” he said.
Mr Tarin also touched upon non-implementation of key items of the 7th National Finance Commission (NFC) Award that he had delivered 11 years ago, saying the functions devolved to the provinces were to be financed by the provinces, but the Centre renamed various ministries with large footprints, hence the need for expenditure rationalisation.
At the same time, the minister had an ambitious target to reduce political temperature in the country by bringing together other opposition parties on a ‘charter of economy’ by using his good relations with the PML-N, PPP and other parties.
Finance minister says they [lenders] want ‘stabilisation through strangulation’
The critical elements of the IMF programme for which the government had been under political pressure included a steep increase of over 35 per cent in power tariff, more than Rs1,200 billion additional revenue generation in a year and complete autonomy and immunity from acts of omissions and commissions for the State Bank of Pakistan governor and other key executives.
The finance minister described inflation, power sector, revenue and agriculture and growth as key challenges facing the nation and said that short-, medium- and long-term plans had been prepared with a philosophy to move out of stabilisation and move into growth mode. This has to be done through the Public Sector Development Programme (PSDP) and by incentivising housing, industry, agriculture and small and medium enterprises to enlarge the revenue envelop.
Mr Tarin said the government was not seeking to exit from the IMF programme, but power tariff would not be increased and the revenue target would be revised downward significantly. “Their (IMF) stamp works and the world sees you as moving towards stability; however, the targets they’ve given us at this time are unreasonable.”
He said it was unreasonable to increase the revenue target at the start of the IMF programme from Rs3,800bn to Rs5,500bn in one ago. “This will not be done now. We will keep increasing revenues by 1-1.5pc of GDP per year for the next 7-8 years to jack up tax-to-GDP ratio to around 20pc. We cannot increase power tariff so much, nor is there a room for incremental taxes. The people are already fed up,” he said, adding that during initial discussions with the International Monetary Fund and World Bank, Pakistan had sought some space and “they are very sympathetic”.
The minister said the government would give an alternative plan to control circular debt, but further tariff increase at this stage was not possible. “The prime minister is not willing to do that. We will regret,” he said, adding the World Bank was more sympathetic than the IMF and “we will convince them”.
He said revenues were increasing at 92pc till April 20, compared to the same month last year, but dropped to 50pc after 10 days, as the third Covid-19 wave required business restrictions. “We will change the method. Tariff increase is not the only way to raise money,” he said
Mr Tarin said that while the Federal Board of Revenue (FBR) had significantly increased taxes, people continued to be harassed that discourage them to enter the tax net. “We will introduce programmes in the coming budget which will reduce and eliminate obstacles so the common people entering the tax net do not face difficulty”.
The finance minister said that when the PTI came to power it faced a lot of challenges and top among them was current account deficit. He said the incumbent government had to approach the IMF and the environment was not as friendly as when “I had gone to the IMF in 2008 and the world was with us”. It was a “friendly environment” at the time, but not as “friendly” now due to the surrounding political situation and efforts of some countries which made the process difficult, he explained.
Mr Tarin said the current IMF programme was difficult and set such conditions which also had a “political cost”. “But I think the government, despite those strict conditions, followed it and went towards stability.”
He said the main focus would now be on growing the economy through development and providing incentives to industry, agriculture and housing to generate employment opportunities for people and keep the industry growing. He said that about 12 economic groups had been created to make a comprehensive plan for those people and ministries who had to implement them.
Terming inflation a major challenge, he said prices were very erratic and the rate of inflation was not coming down due to energy rates and taxes. He said there was a big disparity in prices from farm to market as middlemen took away 40-50pc of the gap by exploiting the farmers. He said cold storages would be established across the country and the government would create a special company where farmers could offload their produce and go to the commodities market.
The minister said Special Assistant to the Prime Minister on Social Protection and Poverty Alleviation Dr Sania Nishtar had run a successful social protection programme which would be expanded to healthcare, employment and skill development.
Calling the power sector the ‘biggest guerilla’ on the table, he said the capacity payments were increasing. He said all the state-run companies would be taken out of the ministries concerned and given to private experts having no conflict of interest to improve and privatise them.
He said the governments had underspent on the agriculture sector over the years and resultantly its production was stagnating while population was growing. “We will have to spend money on agriculture and we will treat agriculture as a major industry.” At the same time, he said the industry and exports sector were not competitive and the government would create a special vehicle which could consolidate industry and bring in foreign direct investment.
Mr Tarin said the China-Pakistan Economic Corridor (CPEC) would be utilised to its true potential and the Chinese would be requested to set up special economic zones and bring their outsourced ventures and sunset industries to Pakistan as they had been doing in Myanmar and other countries.
Simultaneously, he added, the information technology sector would be fully supported and it would become a game changer for Pakistan over the next five to 10 years.
Also, on the pattern of Kamyab Jawan Programme, he said, Kamyab Kisan (farmer) Programme would be launched to bring about prosperity and reduce poverty.
In response to a question about the National Accountability Bureau (NAB), the finance minister said: “We should stop digging and see where we stand. NAB should look at many things, they don’t know what is happening and they should understand our environment.” He said he would not like to comment further on the issue because the prime minister and others were involved in it and there were steps to be taken soon on that aspect.
Published in Dawn, May 6th, 2021