As the Finance Minister Shaukat Tarin has been busy with the Supplementary Finance Bill 2021, its explanation and managing the oppositions’ backlash in the National Assembly, Dr Imtiaz Ahmed, Economic Adviser, Finance Division, responded in detail to Dawn’s questions on future prospects. The government, he says is confident that on the strength of sound policies both national and household economy will fare better in the current year.
Q. Will the economy improve in the year ahead? Should people expect some relief?
A. Yes, of course, we have very visible signs of improvement and the economy rebounded well. The prudent and active response of the government to Covid-19 made the V-shaped economic recovery possible, saved the lives and livelihoods of the people. We expect good economic growth in the current as well as in the years ahead.
The latest estimates suggest very impressive performance in the agriculture sector. The available estimates indicate cotton growth is 32.8 per cent (9.4 million bales), sugarcane8.2pc (87.7m tonnes), rice 5pc (8.8m tonnes). Large scale manufacturing posted 3.6pc growth during Jul-Oct 2021-22. During July-Nov, car production increased 68.4pc (85,083 unit), tractors by 15pc (22,034 units), truck and buses by 64.1pc (2,559 units), two/three wheelers by 0.8pc (79,7245 units), cement dispatches increased by 6.9pc (4.8m tonnes), oil sale increased 17.6pc (9.6m tonnes).
Instead of leaving the poor to the mercy of the trickle-down effect, the government has provided relief through Ehsaas and Kamyab Pakistan Programme. The government tried its best not to pass on the burden of the rise of global commodity prices to the masses.
Q. If the economy is growing, why does it not feel like it? Will Pakistan achieve growth targets?
A. Pakistan is currently on a high growth path. However, it is confronted with imported inflationary pressure like other nations. Moreover, the latest Omicron mutant of the coronavirus has clouded the world economy with uncertainty. Still, there are strong growth expectations in 2021-22.
We should not ignore the fact that the impact of economic growth on the general public takes time to trickle down. The government’s measures are geared towards achieving higher inclusive and sustainable growth. To this end, the government has taken various pro-growth initiatives.
Q. Do you think it was a mistake not to make the access to the generous stimulus package to the private sector conditional on employment generation and wage increases?
A. Conditional help at a time of crisis is never a good idea. On our part, we announced the largest ever fiscal stimulus package of Rs1.240 trillion that covers Emergency Response (Rs190bn), Support to Business (Rs480bn) and Relief to Citizens (Rs570bn).
It is worth mentioning that the fiscal stimulus package was complemented by liquidity support for the industry especially small and medium enterprises (SME) from State Bank. A construction package for low-cost housing and jobs creation was also announced. Ehsaas Emergency Relief Programme and the incentive package for SMEs provided support, especially to poor families. Due to the apt response to the Covid outbreak, Pakistan’s economy did not suffer as much as others.
Q. How much additional funds were invested in the property sector after the amnesty scheme?
A. Under Section 100D (special provisions relating to builders and developers), till now a total of 2,238 applications have been filed to avail the scheme, with a total cost of projects in the range of Rs556bn.
Q. How do you assess the economic diplomacy situation as the West seems to be unresponsive and the East passively reluctant?
A. Pakistan enjoys a very strategic position geographically, politically and economically. It has strong diplomatic relations with both the West and East. Pakistan largest exports destination is the US followed by Euro Area and the UK, and import destinations include China, UAE and European countries.
The remittances are sourced from Saudi Arabia (26pc), UAE (21pc), GCC (11pc), UK (14pc), US (9.4pc) and EU (9.5pc). Foreign direct investment is received from China (41pc), US (9.0pc), Hong Kong (8.4pc), UK (7.7pc), Netherland (5.7pc) and UAE (5.5pc). Due to our successful diplomacy, 1,775 medical professionals (doctors/nurses/technicians) have proceeded to Kuwait for employment since October, 2020.
Japan and Korea are also keen to benefit from our growing labour force. The Korean government has decided to lift visa restrictions on foreign workers paving way for the entry of Pakistani workers to ROK. Pakistan and Japan signed a memorandum of cooperation that would allow skilled Pakistani workers to secure employment in East Asian countries.
In Afghanistan, Pakistan helped NATO and other embassies staff a safe passage. In December 2021, Pakistan hosted a conference of foreign ministers of OIC countries to avert a looming humanitarian and economic crisis in Afghanistan.
Q. When will the International Monetary Fund programme (IMF) be revived? Will Pakistan be able to complete it? How do you intend to contain the adverse impact of stabilisation on businesses and people?
A. After the completion of negotiations under the sixth quarterly review of the ongoing Extended Fund Facility (EFF) programme, the government and IMF reached a staff-level agreement on November 21, 2021. It is expected that all the prior actions under the said review, which includes the passing of the supplementary finance bill and the State Bank of Pakistan Amendment bill, will soon be completed. The Executive Board meeting is expected to be held on January 12, 2022, which will approve the disbursement of $1bn under the EFF programme.
Our commitment and hard work have supported us to successfully complete the stabilisation phase. To dilute the painful impact of stabilisation measures, we have introduced measures in all the sectors of the economy to stimulate growth, with a clear roadmap of strategic priorities, business facilitation, investment opportunities, revenue and expenditure plans. In addition, we have initiated various social sector development programmes to improve people’s wellbeing.
In agriculture, various programs were launched such as National Agriculture Emergency Programme, Agriculture Transformation Plan, Kamyab Kisan Programme etc. Agri credit, fertiliser off-take, production and import of agriculture machinery are showing healthy growth.
In the industrial sector, the government is giving monetary and fiscal incentives including exemptions on raw materials, fixed tax schemes and simplified tax returns, schemes for risk-sharing and collateral-free lending for SMEs, special electricity tariffs for industrial use, new auto policy, reduction in tax on textile products and tax relief to oil refineries. In addition, Long-Term Trade Financing (LTFF 5pc) and Export-Refinancing Scheme (ERS 3pc) are being given.
Under the social protection programme, for 2021-22, the allocation for the Ehsaas programme has been increased from Rs208bn to Rs252bn.
On the strength of these measures, we hope the economy will perform better in the year ahead.
Q. The salaried urban middle class, the political base of the PTI, has been under crippling stress. Do you have a plan to conserve the support of this vibrant class in Elections 2023?
A. The government is taking policy, administrative, and relief measures to reduce the impact of imported inflation on people. The upsurge in international food prices is mainly due to the fall in global food production and high demand due to the pandemic and supply chain disruptions, which have partially been transmitted in the domestic market as the government cushioned it. A relief package of Rs120bn was announced to provide a 30pc discount on ghee, flour, and pulses to 130m people for the next six months.
The government is highly committed to conserving the support of this vibrant class through various initiatives like Sehat Sahulat Program, Kamyab Pakistan Programme (KPP), Kamyab Jawan Programme, and Hunermand Pakistan. We granted a Disparity Reduction Allowance of 25pc of the basic pay, the minimum wage has been increased from Rs17,000 to Rs20,000 in 2021-22, and around 45,000 low-cost housing units are under construction.
Q. When will the China-Pakistan Economic Corridor be visibly re-energised?
A. CPEC is moving in full swing ahead.
Q. How does the growing influence of TLP and likes under the government patronage impact the economy directly or otherwise?
A. We cannot deny the fact that Pakistan has suffered from violent protests by different religious and other groups in the past. The recent economic recovery was a source of unbounded optimism but the country has been hit hard by the agitation.
We should not be in a state of denial and accept the fact that the economic bill of agitations is very high along with the human cost. It creates a negative image and sends a bad message to investors.
Furthermore, the blockades disrupt supply chains, restrict the mobility of people, damage public and private property and suspend business and trade activities.
Q. What is the single biggest hurdle on the path to inclusive sustainable growth?
A. The macroeconomic imbalance is the single biggest hurdle. Import-led growth has always resulted in twin deficits which makes sustaining above 5pc GDP growth difficult. It causes a balance of payment crisis as well as fiscal imbalances.
Published in Dawn, The Business and Finance Weekly, January 3rd, 2022