The policy shift to move out of stabilisation mode and towards growth mode is being synchronised by the government with initial signs of recovery and stimulus-triggered surge in profits of leading corporate enterprises. That, notwithstanding the downside risks from Covid-19, has improved the outlook for capital spending needed for higher economic growth. More incentives are expected to be announced in the budget 2021-2022 to stimulate economic activities.

Net profits earned by the top 94 companies listed at the Pakistan Stock Exchange, and part of the KSE-100- index, surged 82 per cent year-on-year to a record high of Rs243 billion during January-March, up from Rs133.65bn posted for the first quarter of last year.

In the eight months of the current fiscal year, foreign manufacturing companies remitted 50pc more profits to their parent firms amounting to $418m against $278m during the same period last year. The output of the large scale manufacturing sector during July-March rose by 8.99pc year-on-year despite the dip in output during February and March. In the corresponding period, 43.61pc growth was recorded in the information technology and telecommunications industry.

The federal Public Sector Development Programme is being significantly enhanced to Rs900bn but its fund’s allocation and utilisation is slower than stipulated and completion of projects is often delayed

The improved financial performance of top domestic corporate enterprises and multinationals have been followed by 186pc growth to 2,185 new companies registered by the Securities and Exchange Commission of Pakistan in April compared to the number enrolled in the same month last year. They included 47 firms with foreign equity capital. Nothing stimulates the private sector investment more than robust profits if it is coupled with a growing economy.

For the first time, 194 firms — the highest number in a month — were registered in the IT sector followed by the trading sector with 180 firms. Officials estimate that the IT sector has the potential to increase exports from the current $1bn to $8bn. Finance Minister Shaukat Tarin says the sector would be fully supported in the next budget, hoping that it would become a game-changer for Pakistan in the next five to 10 years.

Measures proposed for the next budget, as indicated from official pronouncements, are briefly summarised as follows. A special vehicle will be created to consolidate the industry and bring in foreign direct investment. To make industry and exports competitive, a true corporate culture would be introduced. In a related development, Amazon has decided in principle to add Pakistan to the sellers’ list. The platform will enable exporters to sell products.

Inflation, revenue, power sector, agriculture and economic growth have been identified as key challenges facing the economy. The main focus would be on development and incentives will be provided to industry, agriculture and housing to generate employment opportunities and keep the industries growing.

For harmonised inter-sectoral growth short-, medium- and long-term plans necessary for broad-based sustainable and inclusive growth, are now being prepared by the Economic Advisory Council for 12 sectors identified by the finance ministry.

Adopting innovative methods, the tax-to-GDP ratio would be improved by 1-2pc per annum. For example, to enlarge the revenue envelop, the housing industry and small- and medium-sized enterprises will be incentivised

The power tariff will not be increased and the tax revenue target would be significantly revised downwards from the International Monetary Fund (IMF) set targets earlier agreed to by the authorities. The government would give an alternate plan to the Fund to contain circular debt in the power sector.

Mr Tarin told a National Assembly panel that a mechanism has been prepared to reduce General Sales Tax (GST), now at a very high rate of 17pc, while work is in progress on a sales tax system for small businesses. Tariffs on raw materials for textiles, pharmaceuticals, chemicals, dairy, food processing, engineering, footwear etc are proposed to be reduced, says Mr Razak Dawood, the prime minister’s advisor on commerce and investment.

Responding to the position taken by Pakistan, IMF’s Director for Communication Gerry Rice said “we stand ready to support Pakistan navigate the difficult situation it is facing owing to the Covid crisis while helping to ensure the objective of debt sustainability with strong and sustainable growth.” In April 2020, the Fund had given Pakistan $1.4bn under Rapid Financing Instrument to address the pandemic shock.

In a news briefing held on May 6, Mr Rice said the IMF was looking forward to continuing discussions with Pakistan authorities when the time comes for the sixth review. Dr Hafeez Pasha thinks that the IMF programme may be suspended as renegotiations may not be acceptable to the Fund staff after they got it approved by the IMF board.

In the revised budget strategy, Train says ‘we will treat agriculture as a major industry’ and spend money to pull the sector out of current stagnant production. He noted that there was a big disparity in the prices from farm gate to market as middlemen took away 40-50pc of the gap by exploiting the growers. Cold storages would be established across the country by a proposed special company where farmers would off-load their produce and go to the commodities market. A Kamyab Kissan Programme will be launched to reduce poverty and bring about prosperity.

Prime Minister Imran Khan told his economic team in a recent meeting that development for the next fiscal year should be a tool to shift from stabilisation to growth. The federal Public Sector Development Programme (PSDP) is being significantly enhanced to Rs900bn. Apparently, it is a tall order. Both allocation and utilisation of funds for federal PSDP are slower than stipulated and completion of projects are often delayed affecting their viability.

The federal development spending has dropped by 22.5pc to Rs264bn in the first nine months of the current fiscal year from Rs340bn in the same period last year. It has now been decided that timely project completion will be ensured by ‘constant monitoring’ of ongoing projects.

In the corresponding period, the development spending by provinces has increased by 2pc to Rs390bn from Rs382bn. However, Sindh Chief Minister Syed Murad Ali Shah laments that his province’s development spending has been squeezed because it received only 70pc of its share from the National Finance Commission divisible tax pool in FY2019-20.

Published in Dawn, The Business and Finance Weekly, May 17th, 2021