Acting Chairman of All Pakistan Textiles Mills Association (APTMA) Zahid Mazhar has requested Prime Minister Shahid Khaqan Abbasi to prioritize the revival of the economy in general and textile industry in particular during his tenure; he further contended that the economy needs to achieve an annual 8 percent growth rate to survive which, he claimed, was only possible if the focus was on exports (arresting and reversing the ongoing decline), and more specifically on the textile sector. It is unclear how Zahid Mazhar reached the 8 per cent growth rate for survival figure, however, what is clearly evident is that the economy does require immediate attention with an urgent need to revisit some of the major policy decisions of the past four years. The International Monetary Fund on 14 June 2017 uploaded a press release on the conclusion of the IMF Board's Article IV Consultation with Pakistan projecting a growth rate of 5.5 percent for 2017-18 on the back of the China Pakistan Economic Corridor (CPEC), improved availability of energy, and growth-supporting structural reforms.
The first two elements are clearly the priority of the recently-elected Prime Minister, like his predecessor, however structural reforms are urgently required as per all recent multilateral reports: (i) tax sector which must include enhanced documentation with a view to ending the generation of black money from the formal sector leave alone from the informal sector as well as increasing reliance on direct taxes that are based on the ability to pay principle, as opposed to indirect taxes whose incidence on the poor is greater than on the rich. Abbasi did, in his maiden speech in the House as the Prime Minister-elect, pledge to increase total tax collections. He specifically mentioned the parliamentarians but did not focus on structural reforms that would render the tax system fair, and non-anomalous; the IMF in its June 2017 press release stated that Directors recommended mobilizing additional tax revenues by broadening the tax base and strengthening tax administration; and (ii) the energy sector which, unfortunately, remains mired in poor governance with the circular debt remaining a serious source of concern and the recent approval by the regulator, which was denied earlier for valid reasons, to pass on a 1 percent increase on CPEC projects as security cost - a raise that would further widen the difference between the cost of electricity in Pakistan with our regional competitors. This state of affairs prompted the Fund Directors to call for maintaining a strong regulatory framework in the energy sector, swiftly addressing the renewed build-up of arrears in the sector, and ensuring its financial soundness. In this context it is relevant to note that Mazhar claimed that the domestic textile industry has been hit hard by a 30 percent higher cost of gas and electricity than provided to regional competitors.
APTMA Acting Chairman also mentioned the delay in refunds as an impediment to export growth, a delay which is creating liquidity concerns compelling many exporters to borrow which, in turn, is raising their input costs.
Unfortunately, however, a revision in policies is unlikely as Ishaq Dar retains the Finance portfolio and has to-date shown a marked resistance to accepting any advice that requires a change and/or adjustment in his policies, including those that would arrest the export decline. Dar has not specifically directed the Federal Board of Revenue (FBR) to release refunds to the textile sector on time, though he did periodically release some refunds after receiving directions from former Prime Minister Nawaz Sharif and instead has consistently placed, albeit unfairly, the blame squarely on the Commerce Ministry for a decline in exports. It is not clear whether Dar would extend the same courtesy to Prime Minister Abbasi if and when directed to release refunds as his focus is on showing a low budget deficit with little concern for the impact of such a policy on our exports. To conclude Prime Minister Abbasi needs to urgently make changes in economic policies that have been prevalent for past 4 years though it is unclear whether he has the mandate to over-rule Dar.
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