ISLAMABAD: With conventional foreign financing lines largely dry off and expecting a massive shortfall in revenue, no a mini budget but a ‘maxi budget’ would be unavoidable for the government, besides facing tough quarterly review of the International Monetary Fund (IMF) under the new loan programme.
This was stated by Dr Hafeez Pasha, former finance minister, while speaking at “Paisa Bolta Hai” with Anjum Ibrahim.
Dr Pasha said that trade deficit and current account deficit improved during the first two months of current fiscal year. However, the improvement was not due to increase in exports or decrease in imports but due to massive increase of 40 per cent in remittances.
No new taxation measures or mini-budget under study: FBR
He said that due to stabilisation of rupee, hundi/ hawala was controlled and it produced good results in terms of increasing remittances.
However, Dr Pasha warned that second part of balance of payment; i.e., financial account is not in a good position. He said that net external inflow in financial account decreased by $3 billion during the first two months of current fiscal year compared to the same period of last fiscal and inflow remained around $200 million; resultantly, financial account weakened.
To a question, he said that in the past, the country received disbursement from multilateral bilateral sources and it met requirements, but now bilateral loans is nominal as China has also stopped lending new loans to Pakistan.
He further said commercials banks were the traditional sources for borrowing; however, interest rate has gone to double digits of up to 13 per cent. Despite the fact that Moody and Fitch upgraded Pakistan and globally interest rate came down, but Pakistan is getting expensive loans, which shows the country’s vulnerability.
Dr Pasha said the most dangerous is budgetary position due to shortfall in Federal Board of Revenue (FBR)’s revenue, of around Rs250 billion. Growth in revenue is 20 per cent during the first two months of the current fiscal year which should have been 40 per cent to reach the target.
Further, the money which was due to come from the State Bank of Pakistan (SBP) through profit remained half; i.e., short by Rs1,250 billion, said Dr Pasha, adding that the provincial governments which had committed to generate surplus of Rs1,250 billion is hardly to reach Rs700 billion.
Financial position domestically is very weak and quarterly review with the IMF would be very dangerous with respect to tough conditions, said former finance minister, adding that in next few days and weeks, government would require to produce a ‘maxi’ and not a mini budget.
He said the government has revenue target of Rs12.970 trillion compared to Rs9.3 trillion achieved last year. With a 20 per cent growth in revenue would hardly reach Rs11.300 trillion and likely to face massive shortfall of Rs1700 billion at a time when shortfall is also coming in other revenue sources.
In response to another question, Dr Pasha said GDP growth last year was on account of production of different crops, which witnessed around 16 per cent growth after floods. In the current year, cotton, as well as, wheat production target will be missed and the 3.5 per cent growth target would be hardly achieved, said Dr Pasha, adding that manufacturing output increased by around 2.5 per cent in July 2024 compared to the same period of last year but declined when compared to June 2024. The growth rate would further decline when the government imposes more taxes, he added.
He said inflation has come down, but there is still manipulation. Currently, inflation is in the range of 12.5–13 per cent and is understated by around four per cent as house rent, impact of energy prices and other things are understated.
He expected rise in inflation, after the implementation of the market determined exchange rate policy as agreed with the IMF as it would result in depreciation of rupee compared to dollar. The IMF has given the assessment in staff-level agreement in July that rupee would go to Rs320, said Dr Pasha, adding that rupee is currently being controlled skilfully by restricting imports through delaying opening of LCs and restricting imports of non-essential items.
He said that exporters are hit hard by massively increasing electricity and other energy prices, withdrawing subsidies, high interest, high taxes, and not giving the benefit of exchange rate to them and exports are expected to further hit negatively in the coming days.
The nominal increase in exports during the first two months of current fiscal year was mainly due to increase in rice exports, he added.
He said every year development budget is cut and this time around is likely be cut by around Rs700 billion. The cut in interest rate would result in decreasing debt services expenditure by up to Rs400 billion but due to massive shortfall in revenue, budget deficit is expected to reach 7.5- 8 per cent and the IMF would come very hard, he added. Replying to another question, Dr Pasha said the system is being run on ad-hoc basis and lack comprehensive and a well-thought-out plan.
The lifeline is to increase exports and revenue and reduce expenditure both civilian and military. Military expenditure including pensions and civil armed forces has reached around Rs2,700 billion which needs to be reduced. Further, the 20–25 per cent increase in salary for government officials/ officers was inappropriate.
Referring to the Punjab government’s decision of giving subsides of Rs45 billion on electricity, he termed it inappropriate on part of the provincial government. Pakistan has centralised system at level of the Nepra; therefore, it is inappropriate for a province to take a decision on price.
He said unemployment ratio has touched 11 per cent; i.e., eight million people are unemployed in the country; poverty rate has surged to 43 per cent while saving rate turned negative.
He said that the current finance minister is a person of integrity and a banker but does not appear to be very familiar and comfortable with the government’s financial issues including taxation and other policy issues due to lack of experience and background.
Copyright Business Recorder, 2024
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