Surge in power sector capacity payments ‘haemorrhaging’ government finances: Tarin

Finance Minister Shaukat Tarin on Wednesday expressed concern over the government's rising capacity payments in the power sector, which, he said, has had to pay Rs850 billion this year alone for electricity which “we don’t even use”.

In an address in Islamabad, he warned capacity payments would surge by over Rs1 trillion by next year, adding: “We have to deal with this because it is haemorrhaging public sector finances."

The remarks were made in an address in Islamabad where Tarin said the country's power sector faces an overcapacity of electricity generation. He said that the government has taken multiple steps to fix this issue.

The finance minister said that the government is also paying attention to the industrial sector. “The policies which we have given not only to the large industries but also for the small and medium enterprises (SMEs), should help us grow,” he said, adding that the government is helping the SME sector take advantage of credit financing.

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Highlighting issues of the financial sector, Tarin said that the banking footprint in Pakistan only accounts for 33% of the GDP. “We have to fix the financial sector, because there is a problem in resource sharing, as only nine cities consume 85% of credit,” he said.

“The banking sector has to become a partner in the growth of the economy".

On housing and construction, Tarin said much progress needs to be made as the sector makes up less than 1% of Pakistan’s GDP.

The finance minister was of the view that the booming IT sector of the country has the potential to bridge the trade gap. “We are giving all kinds of concessions to the IT industry. Last year it grew by 47%, this year they are probably growing by 70%. If they keep growing by 100% every year, in five years' time, IT sector exports are going to dent the difference between exports and imports,” said Tarin.

Criticising the policies of the past governments, Tarin said that previous governments lived with ‘structural imbalances’, which continued to grow with the passage of time. “Our tax to GDP ratio was pathetic, and always hovered around 10%, which is not enough to meet government spending needs,” he said.

“We have a mismatch between our exports and imports, which put pressure on us."

"Another structural imbalance which continues even today is the savings rate,” said Tarin, adding that the country needs to have a savings rate that can support a 6-8% growth rate, and that it should be above 25%.

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He said past governments didn’t focus on improving the productivity of the agriculture sector, which has now led to food shortages.

In his concluding remarks, Tarin said that the government in the long run wants to achieve inclusive, sustainable growth, which will carry the country forward into the next 20-30 years.

Earlier, Special Assistant to the Prime Minister on China Pakistan Economic Corridor (CPEC) Affairs Khalid Mansoor said CPEC related projects are being executed on a fast track basis across the country.

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He said industrialization is being promoted in the country and investors are being facilitated for maximum investment. He also said a petrochemical complex will be established in Gwadar.