Tarin says realisation of growth targets requires stability

ISLAMABAD: The government has set a growth target of 6-7 percent in the medium-term –which will be generated not by stoking consumption through borrowing but through higher investment, efficiency and enhanced productivity.

This was stated by Federal Minister for Finance Shaukat Tarin, while speaking at “Pakistan’s Economy - Fragility & Smart Action Strategy” National Workshop Balochistan-7, organized by Headquarters Southern Command.

“We do not just need growth, but an inclusive and sustainable growth. In the medium term, the growth target is set at 6-7 percent. The realization of this goal requires economic stability,” said the minister, adding the government is committed to ensuring that the growth momentum remains intact.

He said the development plan of the government is aimed at enabling the country to stand on its feet.

It will put the economy on a higher growth trajectory; with growth being generated not by stoking consumption through borrowing, but through higher investment, efficiency and enhanced productivity.

In this regard, measures are being focused on establishing and strengthening an economy, which is not only self-reliant but also capable of competing with its competitors globally, Tarin added.

The finance minister said there is a strong linkage between a country’s national security and economic security, which in turn ensures sustainable economic development.

The present government is strongly committed to managing the national economy in a most efficient and effective manner, both at the macro and micro levels, to achieve higher sustainable and inclusive economic growth.

The government has devised a comprehensive set of economic reforms across all sectors of the economy, said the minister, adding that macroeconomic stability has been achieved and now they are moving towards the higher growth trajectory.

He said the budget 2021-22 is a growth-oriented budget based on a strategy to stimulate economic growth with a clear roadmap of strategic priorities, revenue and expenditure plans.

The growth target for fiscal year 2022 is 4.8 percent.

He said agriculture will be the mainstay of the development due to its linkages with employment, trade and food security.

An additional amount of Rs25 billion is being allocated for the development of agriculture sector, he added.

He said in order to provide a boost and further strengthen the industrial economy, major exemptions are given on raw material of worth Rs45 billion with an aim to increase the competitiveness of this important sector.

Fixed tax scheme and simplified tax return for manufacturing SMEs and risk sharing and collateral and free lending to SME, various schemes have been envisaged for which an allocation of Rs12 billion has been made.

Special electricity tariffs have been provided for industrial use.

“We will make CPEC the platform where industries will be relocated. We are bringing a new auto policy and introducing ‘Meri Gari Scheme’,” he said.

As part of Auto Policy Incentives, tax relief earlier given to the auto sector for the vehicles upto 850cc is being extended to 1000cc vehicles. On textile products, the tax has been reduced from 12 to 10 percent. Under the construction package, the ratio of income tax has been reduced from 35 percent to 20 percent. Tax relief has also been given to oil refineries, so that they could turn to Euro-5 fuel, the finance minister said.

“In this regard, we are taking various initiatives, which include the taxes imposed on exporters have been rationalised and incentives are given in value-added products. Exports of IT and IT-enabled services have been brought under the ambit of 100 percent tax credit. Investment will be made in Special Economic Zones and Special Technology Zones and allocation of Rs20 billion for payment of DLTL claims,” he said.

He said the government has introduced a comprehensive construction package.

He said under the New Pakistan Housing Scheme, a subsidy of Rs30 billion is being provided for the construction of low-cost houses.

“The country is faced with an unusual expansion in generation capacity, which is imposing unbearable fixed capacity charges, impossible to be passed onto consumers. This situation is posing risks to the larger health of the economy and hence, it is imperative to solve these problems on a war-footing. We have formulated a circular debt management plan. It includes curtailing line losses and improving recoveries. We will continue to provide subsidies to low-income electricity consumers through targeted subsidies. We are focusing on improving the transmission and distribution system,” he said.

He said tax collection has been fixed at Rs5,800 billion and the FBR will achieve this target by eliminating face-to-face contact through automation and use of technology, Universal Self-Assessment Scheme and third party audit, tax defaulters may face legal action if they do not pay their taxes. Only a committee headed by the finance minister will have the authority to arrest a wilful tax defaulter.

“12 withholding taxes have been withdrawn as these are regressive in nature,’ he added.

He said the government has enhanced the development budget from Rs630 billion to Rs900 billion with an aim to boost economic growth, reduce unemployment and poverty thus, leading to inclusive growth.

“We will bring down the budget deficit to 6.3 percent of GDP in fiscal year 2022 from 7.1 percent. The primary deficit would be brought down to 0.6 percent of GDP. We have made a total reduction in primary deficit of 3.2 percent in three years from 3.8 percent in fiscal year 2019,” he added.

He further said “the new development package announced in the budget 2021-22 is going to be a game changer for common man - providing loans to farmers, job opportunities to the youth, houses to the low-income group and Sehat Health Card; thus, upgrading the lifestyle of our masses. At present, poor and middle class households have limited access to loans. To solve this problem, the government has decided to use the resources of the banking sector as a wholesaler. Through this way, the poor and middle class household would have an access to banking sector. The government will bear the mark-up cost and will provide the guarantees. For the first time in the history of the country, under this growth model, we will bring financial resources at the doorstep of the poor,” he said.

For Ehsaas programme, Rs260 billion is being allocated in the budget 2021-22, the finance minister added.

He said the present government inherited an economy in crisis with significantly higher macroeconomic imbalances.

“Current account deficit of $20 billion was highest ever. Imports were at about $56 billion were 224 percent of exports of $25 billion, compared to 162 percent in 2012-13. Higher imports were subsidised by an over-valued exchange rate, which remained constant at Rs104 for nearly five-year period. During this period, exports growth was negative 0.14 percent, while imports grew by more than 100 percent. The debt and liabilities, which stood at Rs16 trillion as on 30-6-2013, rose sharply to reach about Rs30 trillion as on 30-6-2018, reflecting an increase of Rs14 trillion or 88 percent. Static tax-to-GDP ratio and fiscal deficit was on increasing trend,” he said.

He further said that inflation had started to accelerate due to heavy deficit financing from SBP and devaluation of PKR.

“Foreign reserves, largely built on borrowing, rose from $6 billion in June 2013, to nearly $20 billion in late 2016, but then sharply declined to $10 billion by end June 18. Despite clearing a mammoth circular debt of Rs485 billion through cash payments, a huge circular debt of Rs1.2 trillion was again accumulated. Claim of achieving higher growth was nothing but built on heedless borrowing, over-valued exchange rate, low interest rates and unprecedented borrowings from the State Bank,” he said.

According to him, the government took some difficult policy decisions to avert the crisis and laid the foundation of strong and sustainable economy through bilateral arrangements, multilateral program, IMF programme and deferred oil payments. Further, current account deficit was managed through exchange rate correction, export industry incentives and duties imposed to curtail luxury import items, rationalization of energy prices, prudent expenditure management through austerity measures, no supplementary grants and zero borrowing from SBP.

“These measures paid off in terms of improved external and fiscal accounts, stability in exchange market and growing investor confidence.” He added.

He said that after considerable efforts, the government has succeeded in stabilizing the economy and putting it on optimal growth path.

“The Covid-19 brought multifaceted challenges for Pakistan. Pre-Covid, the global economy was projected to grow by 3.4 percent in 2020 but due to Covid-19, global growth contracted by 3.3 percent. World’s top most economies such as the US (-3.5 percent), Euro Area (-6.6 percent), UK (-9.9 percent), Japan (-4.8 percent) and many others suffered badly. The economic growth contracted by 0.47 percent in fiscal year 2020. Pakistan has contained adverse effects of the pandemic on the economy and vulnerable segments of the society through appropriate measures. The government announced the largest ever Fiscal Stimulus package of Rs1,240 billion. This package was also complemented by liquidity support for industry especially SMEs from SBP,” he said.

He further said the economy rebounded strongly in fiscal year 2021 and posted a growth of 3.94 percent on the basis of 2.77, 3.57 and 4.43 percent growth in agriculture, industrial and services sectors, respectively.

“Agriculture showed a historic performance. Performance of crops like wheat, rice, and maize were exceptionally higher while sugarcane was the second highest in the country’s history. LSM recorded growth not seen in more than a decade. It has posted a growth of 12.8 percent during Jul-Apr fiscal year 2021 (-8.7 percent same period last year). Tax collections has shown remarkable growth of 18 percent which has crossed the psychological barrier of Rs4,000 billion which is not based on holding back of refunds. The comfortable external balance position of Pakistan has been supported by surplus current account balance on the back of robust flow of remittances and a sustained recovery in exports. Current account deficit of $4.3 billion (-1.8 percent of GDP) in July-May, fiscal year 2020 turned into surplus of $0.2 billion (0.1 percent of GDP) during July-May, fiscal year 2021. Exports increased by 10.3 percent to $23.1 billion in Jul-May fiscal year 2021 against $21.0 billion in the same period of last year. Pakistan has met 26 out of 27 FATF conditions due to strict compliance and prudent reforms,” he added.

Copyright Business Recorder, 2021