Miftah gives a detailed account: How country saved itself from bankruptcy

ISLAMABAD: Federal Minister for Finance and Revenue, Miftah Ismail Saturday claimed that the incumbent coalition government has saved the country from bankruptcy and is expecting $4 billion from friendly countries to bridge the external financing gap.

Addressing a press conference, the Finance Minister, flanked by the federal minister for information, Marriyum Aurangzeb said that misgovernance and flawed policies of the PTI government destroyed the economy, putting it on the verge of default and created a Sri Lanka-like situation with four consecutive budget deficits reaching an all-time high of Rs5.1 trillion by end last fiscal year.

However, now the country is heading towards economic stability, due to some tough decisions taken by the incumbent government despite being fully cognizant of its political cost, he contended, adding that there will be no mini-budget in months to come. However, he said that strict adherence of fiscal and financial discipline is still vital to put the economy on right direction of fast track, sustainable economic development and attaining social prosperity.

There is still a lot of work that needs to be done to save Pakistan from bankruptcy as the country is still at the fourth or fifth place among the countries prone to bankruptcy.

Regarding the depreciation of the Pak rupee against the dollar, the minister expressed the hope that pressure would come down on the rupee after the finalization of agreement with the International Monetary Fund (IMF). He said that import bill is expected to come down by around one billion dollars which would help in appreciating rupee, but at the same time stated that he cannot speculate on currency.

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Ismail vowed to reduce inflation, increase the country’s foreign exchange reserves and end load-shedding by next year. He said poor tax collection and flawed policies during PTI’s around four-year tenure led to budget deficit and economic crisis in the country. He said government will increase tax collection to Rs7,470 billion in 2022-23 compared to Rs 6050 billion in 2021-22. The non-tax revenue collection was targeted at Rs1,935 billion, which not only would be achieved but also surpassed.

He said that $30.4 billion in external financing was needed in 2021-22 while in 2022-23 it would be $35.1 billion. To cover this gap Pakistan is likely to receive deposits of $4 billion in two parts from four friendly countries. A friendly country will extend the oil facility on deferred payment worth $1.2 billion. Another friendly country will invest $1-2 billion in stocks on G2G, said the minister, adding that yet another friendly country will provide gas on deferred payment while another will give deposits. Deposits will come in two parts one in rupees while another in SDRs.

The country is likely to receive $2.5 billion from the World Bank, $3.5 billion from Asian Development Bank, said the minister, adding that $400-500 million are expected from Asian Infrastructure Development Bank. Islamic Development Bank will also provide funds to Pakistan, he added.

The finance minister further said that the previous government broke the agreement it had itself negotiated with the IMF and claimed that the deal with the global lender was delayed by the previous government and was poorly negotiated. According to the deal, an additional petroleum levy of Rs4 was to be imposed every month till it reached Rs 30 - a deal agreed in November 2021 and broken in February 2022, said the minister. He claimed that the PTI government signed a deal with IMF which – if implemented would have resulted in a whopping Rs75 tax on petrol per liter.

The minister said that Sri Lanka did exactly what the PTI did, did not pass on the rise in the international price to consumers, and today nobody can even buy petrol there. Ismail said that Pakistan had to pay $21 billion to the world whereas our government only had $10 billion and the current account deficit of $12 billion was visible, then former Prime Minister Imran Khan started turning away from the world.

He said the overall primary balance is projected at a surplus Rs 153 billion. When asked that the primary budget surplus target of Rs153 billion or 0.2 percent of the GDP set in the newly revised budget, the IMF global lender has, given the 0.4 percent target, the minister said that government has to pay Rs 180 billion to IPPs which from the Fund point of view is not being counted, but we count it. So from our point of view it is Rs 153 billion and no further taxes would be imposed and neither any expenses would be cut. We have met all prior actions of the Fund, said the minister, adding that provinces are doing something (one province has done) for the protected consumers and the rest needs to follow the suit. He does not want to increase the unprotected tariffs and for that we have submitted a petition to Nepra,” said the minister that now it is Nepra decision.

He said that when the coalition government took over the government, it tried to solve all these problems. It was very easy for it to increase the one percent sales tax from 17 to 18 percent and achieve the target of tax collection, but it surely affected the people. Ismail said that instead of imposing indirect tax like the PTI government, the incumbent government imposed direct taxes.

Pointing towards the supertax introduced in June on big industry, the finance minister said that 10 percent supertax was imposed even on the prime minister’s sons’ factory however, Imran Khan imposed indirect taxes - a policy he had himself opposed.

The Finance Minister further said that Imran Khan did not do anything for the country but favored his friends by giving the amnesty scheme.

The responsibility of deepening energy crises lies with wrong policy decisions of PTI government during its tenure. He said that more than 7,500 MW power plants closed in the country on the day when Shahbaz Sharif took oath as the Prime Minister.

He said that 5,000 megawatt power plants were closed because there was no fuel and 2,500 megawatt power plants were closed because they were not repaired in time. They criminalized competitive LNG contracts and instead of striking long term agreements at the lowest possible rates that were available at that time due to Covid, they opted for costlier spot purchases. This is the reason the country was compelled to buy LNG at high rates to meet immediate needs. “It takes Rs 500 billion to run the government,” said the finance minister, and blamed Imran Khan for destroying the power sector while noting that Rs1,350 billion were given as subsidy in the power sector alone.

He said that electricity circular debt increased from Rs 1100 billion to Rs 2500 billion while for the first time gas circular debt surfaced.

Amid gas load-shedding, a circular debt of Rs1,300 billion accumulated. He further said that Imran Khan neither reduced transmission losses, nor improve bill collections. All these factors account for why the country went bankrupt, he said. Ismail also contended that while long-term contracts struck during Nawaz Sharif’s tenure were routinely “criminalized/scandalized” by the PTI government so much so that people were sent to jail for them, but today if the country is running it is because of those agreements. He added that PTI did not make any no long-term agreements for LNG and diesel purchase.

He further said that previous government borrowed Rs 20,000 billion during its tenure of three quarters to four years compared to Rs 25,000 billion debt taken since the times of Liaqat Ali, Khawaja Nazim-u-Din, Ayub Khan, Zulfiqar Ali Bhutto, Nawaz Sharif till Shahid Khaqan during the last 71 years. Criticizing Imran Khan led government, Ismail said that PTI borrowed Rs 20,000 billion but did not add a single megawatt of electricity to the national grid nor did he construct even one hospital.

Ismail further informed that foreign debts and liabilities increased from 33 percent to 40 percent and debt servicing increased from Rs1,500 billion to Rs3,144 billion.

The net debt and liabilities grew by 78 percent during first three years of PTI government and it was increased from Rs23,665 billion to Rs53,544 billion, he said adding that due to their inefficiencies, country witnessed historic high deficits.

PTI government’s average budget deficit remained at a historic high i.e. 7.1 percent, 7.2 percent, 8.1 percent and 9 percent in the last year if rebasing is taken into account as the average deficit was Rs 3500 billion which reached Rs 5100 in 2020-22. During this period the country’s debt increased by almost Rs 5,000 billion annually.

Budget deficit was a historic high during the PTI government and reached $48 billion by end 2021-22. Exports registered an increase and stood at around $31 billion but against imports of $80 billion and exports to import ratio came down from 45 percent to 40 percent. Further historic current account deficit of $17 billion was recorded during PTI’s tenure. He further said that tax to GDP ratio was 11.1 percent when the PML-N government left, but during PTI government it came down to 9.1 percent.

He further said that due to fixing prices the country faced a monthly loss of Rs 120 billion on petrol subsidy and Rs 27 billion on electricity.

As soon as the global price of petrol goes down, it will be transferred to the public. He said that every penny of relief in terms of reduction oil prices in international market has been passed on to the public. Railway and air fares have started to come down, he added.

In a few days the prices of essential commodities will also come down, said Ismail, adding that bus fares will also come down soon.

Keeping in view the high petroleum prices, Prime Minister Shehbaz Sharif has decided to bail out the low income classes. Under his directives, it was decided to pay Rs 2000 per month as assistance to families having monthly income less than Rs 40,000 per month. The decision has been implemented, wef, June 2022 and the additional assistance is being provided to existing beneficiaries of BISP automatically. Now 60 million more people will be added to it who will be paid Rs. 2,000 per month.

He also said that the government will give interest-free loans of Rs500,000 to the youth in an effort to empower the largest age group of the Pakistani population. Ismail stated that the government had removed tax on all seeds, fertilizer, and tractors in an effort to ease the pressure on the agriculture sector.

He said that under the special directives of Prime Minister, the FBR was asked to pay all outstanding refunds of exporters and DLTL in order to provide them financial space to enhance exports and develop the local industrial sector.

Copyright Business Recorder, 2022