Irfan Khan
Irfan Khan

• Aurangzeb hopes to start new fiscal year on stronger note after Survey shows major economic targets missed
• Says philanthropy can support schools, hospitals, but a country can only run on taxes
• Agriculture emerges as saviour with highest growth rate in years
• Govt commits to withdrawing from wheat business
• Unveils plans to negotiate with China for comprehensive debt restructuring
• Minister highlights improvement in current account, exchange rate stability, revenue growth
• Says no to ‘strategic SOE’ mantra

ISLAMABAD: Finance Minister Muhammad Aurangzeb on Tuesday hinted at letting “no sacred cow” escape without paying due taxes through the upcoming federal budget 2024-25, due today. He expressed confidence in beginning the next fiscal year on a stronger note, backed by the IMF support despite missed targets in major real economic sectors, except agriculture.

In his maiden news conference after assuming office exactly three months ago, Mr Aurangzeb also promised to get the government out of the wheat business (setting minimum support price and wheat procurement in public sector) except for ensuring strategic reserves, and vowed to talk to China for overall debt restructuring, including power sector loans that form a major part of capacity payments and expensive electricity tariff.

While launching the Economic Survey of Pakistan 2023-24 along with Minister of State for Finance and Power Ali Pervez Malik, the finance minister, unlike his predecessors, spoke less on the performance of each and every economic sector and their sub-sectors, except improvements to current account, exchange rate stability, agriculture rebound and revenue increase. Planning Minister Ahsan Iqbal’s chair was kept empty on the stage throughout the 90-minute event.

Mr Aurangzeb, however, defended the revival of parliamentarians’ development schemes and federal financing of more than 235 provincial nature projects in the interest of taking all stakeholders, including provinces, along with mutual consultations.

The elected governments in the Centre and provinces “have in their right to reverse the decisions of the caretaker government”, he said in response to a question as to why the parliamentarian schemes and provincial projects were included in the public sector development programme by the National Economic Council (NEC) on Monday despite a January 2014 decision of the then-NEC to exclude them.

Focus on revenue, energy reforms

Mr Aurangzeb said the focus of the upcoming budget, the entire government effort, and the IMF-supported plan will remain on reforming the revenue system, energy sector, and state-owned enterprises (SOEs). He said people remain suspicious of the government’s ability and sincerity in this regard because of the track record, but “my answer (to such suspicions) is that our hand has been forced to do it. We are left with no other option now”.

The finance minister credited his boss — Prime Minister Shehbaz

Sharif — for taking a very important step and starting his journey by securing a short-term IMF loan at the close of FY 2023, when the economy contracted by 0.2pc, the rupee dev­alued by 29pc and foreign exchange res­erves dropped to just two weeks of import cover because there could have been no Plan B.

Mr Aurangzeb said the caretaker government followed fiscal discipline and Pakistan was now taking that journey forward again with the same leadership for the next five years.

With industrial and services sectors struggling at 1.21pc growth each against their respective targets of 3.4pc and 3.6pc and limited GDP growth rate at 2.38pc against its 3.5pc annual target, the finance minister said agriculture emerged as a saviour on the back of major crops, dairy and livestock, which he said had huge potential for growth in the future as well. He said the meek industrial performance was no surprise given the difficulties posed by high interest rates and energy equation.

‘Unprecedented revenue growth’

The minister said the 30pc revenue grow­­th was “almost unprecedented” and helped achieve a primary surplus that was made possible by the provinces by delivering cash surpluses they had promised and hence sho­uld be credited for showing fiscal discipline.

He said the current account deficit had been estimated at $6bn at the start of the fiscal year, which had come down to $200m and the delta so created helped stabilise currency and quality foreign exchange reserves built without debt receipts and through administrative actions and policy reforms. The reserves can now finance more than two months of imports instead of two weeks by the end of the fiscal year 2022-23.

Inflation declined from over 25pc last year to 11.8pc now as both core inflation and food prices dropped, the minister said, but conceded that it was more because of an ease in the global price super cycle than government action.

This led the central bank to reduce the po­­licy rate by 150 basis points, although there could have been greater space, but the minister appreciated that central bank chiefs globally looked at the finish line rather than leaving options for policy reversals.

Mr Aurangzeb said the completion of the IMF’s standby arrangement (SBA) on a positive note had restored Pakistan’s image and credibility that it could show fiscal and monetary discipline and deliver on its commitments and had been recognised by the global lender during ongoing talks that would be very helpful for the next loan programme. He said the talks so far with the IMF had been very productive and “so far so good”.

‘No strategic SOEs’

He said he was firm on his stance that there were no strategic SOEs, and all of them had to be transferred to the private sector. “There could be some strategic activity that can be managed in the public-private partnership,” he said.

Mr Aurangzeb said that while pushing for reforms, the government was following the principle of first enforcing existing policies that could not be implemented so far both in the taxation and power sector and then taking new initiatives. He said leakages were being blocked in the FBR as the track-and-trace and POS systems had failed in implementation. He emphasised that while philanthropy can support schools, universities and hospitals, the country’s functioning relies on taxes. “That’s one certainty. That’s the basic principle,” he said.

The minister said power companies could not be run in the public sector and would be transferred to the private sector either thro­u­­­gh outright privatisation, long-term conce­ssion agreements or a combination of both.

Energy sector reforms, IPP negotiations

Mr Aurangzeb said talks with China on debt servicing of independent power producers (IPPs) would be held as part of the overall debt restructuring.

Mr Malik, the state minister of finance and power, added that the burden of capacity payments to IPPs could only be resolved through mutual understanding with these producers because the government had to honour sovereign commitments while simultaneously increasing consumption.

At the same time, the consumers’ interest also had to be taken into consideration as they were paying the costs of overbilling and non-payments.

Responding to a question about over Rs3.8 trillion in tax exemptions and the projected increase in tax revenues, the minister said his budget speech today would suggest how the government addressed these exemptions, blocking leakages, improving collections and expanding the tax net to untaxed areas.

To another question, he said the external financing needs would not be any challenge next year, as most of the debts would be rolled over as usual and Pakistan would be launching the inaugural Panda bond in China, besides traditional Eurobonds, etc, with improved rating following the new IMF programme.

He hoped that short-term commercial loans from Middle East, which shied away about a year ago amid problems with the then IMF arrangement, would also resume.

Published in Dawn, June 12th, 2024

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