ISLAMABAD: The country's fiscal situation is 'uncomfortable but manageable', Finance Minister Dr Abdul Hafeez Shaikh on Saturday said in response to queries if negotiations on a new programme would be held with the International Monetary Fund (IMF). "We remained engaged with the IMF and other donors, but my job does not allow me in the national interest to speak publicly about the nature of these discussions," the Finance Minister stated.
He also advised public office holder to desist from making statements that would have repercussions on national economy. Analysts viewed this as an oblique reference to the interview by the Governor of the State Bank of Pakistan to a foreign national daily. However, a press brief distributed during the post-budget press conference, highlighting new budgetary measures, referred to the twin deficits - current and budget - as major challenges for the economy.
Other challenges referred by the press brief included reducing public debt, increasing investment, overcoming energy crisis and accelerating growth and job creation. Dr Hafeez Shaikh said that the main focus of the budget for the next fiscal year was to ensure continuity of macroeconomic stability in tandem with provision of relief to the poor and vulnerable segments of society. The Finance Minister said that the government had succeeded in maintaining macroeconomic stability for the past couple of years and measures had been taken in this budget, too, to ensure its continuity.
Arguing that inflation had been declining for the past couple of years, he said that it was projected to come down to single digit in the next fiscal year. However, he was unable to refer to a single product that has witnessed a decline in price. The Federal Minister said the country was passing through difficult times and was negatively affected by rising oil prices in the international market. Regarding the power sector, Information Minister Qamar Zaman Kaira said that the energy crisis was the outcome of negligence of the past 10 years, adding that the previous government was responsible for the current power crisis.
However, he did not respond when journalists pointed out that one of the key members of the Musharraf regime was the incumbent Finance Minister Hafeez Shaikh. Hafeez Shaikh said that the government had provided Rs 250 billion subsidy during 2011-12 to help reduce the price of electricity for the common people and would provide another Rs 183 billion during the upcoming financial year.
The Minister said owing to increase in the oil prices in international market, the electricity generation cost was increasing and the government was providing subsidy to share this burden. There was no problem in electricity production, he said. "The problem is to produce power at a lower rate," he said. He said that the government had taken measures and increased allocation for the energy sector development in the current budget, adding that the power sector was earmarked the highest allocations in the PSDP 2012-13.
He said that he had been authorised to cut funds from other heads to streamline the power sector. Dr Shaikh said that the government had already added about 3,500 megawatts of electricity to the national grid while work on several other hydel and thermal projects was continuing.
He said that the government had decided to provide subsidy on electricity and solar tube-wells, details of which will be shared with the media in the next few days. The government, the finance minister said, would ensures tax collection from all those who were liable to tax, adding that tax collection had increased by Rs 400 billion during the current fiscal year, reflecting a 25 percent increase. Another measure that the government had taken to achieve macroeconomic stability was to enhance allocations for the Public Sector Development Programme (PSDP), he added.
The Minister said the size of the federal PSDP had been increased from Rs 300 billion in the current year to Rs 360 billion in 2012-13, reflecting an increase of 20 percent. He maintained that the Rs 300 billion PSDP allocations for the year 2011-12 had been utilised and helped completion of about 200 projects.
Hafeez Shaikh said that the government was providing targeted subsidy to the through various programmes, including Benazir Income Support Programme (BISP), through which Rs 50 billion had been provided during 2011-12 to 3.5 million families at the rate of Rs 1,000 per family.
In addition, the government provided a subsidy of Rs 50 billion on import of 1.2 million ton fertiliser to ensure food security and as a result the country exported wheat and sugar and earned considerable foreign exchange. The Finance Minister said that the government was trying to make the taxation system easier to facilitate taxpayers. He said that the government had also facilitated the business community by reducing taxes, besides bringing about basic changes in the sales tax system. He said that sales tax had been reduced to 16 percent level on all products.
The Minister said that the procedure for paying income tax had been changed, providing relief to as many as 1.4 million taxpayers. He said an employee who was paying Rs 5,000 tax on his total monthly salary of Rs 50,000 would now pay only Rs 1,500. The minister said that wealthy people, who do not pay taxes, would now be forced to pay their taxes and contribute to the national economy. The government, he said, had also decided to increase salaries and pensions of government public sector departments by 20 percent.
He claimed that inflation during the ongoing year remained at 11 percent, while a 20 percent rise had been made in the salaries of employees in the budget for 2012-13, he added. Dr Abdul Hafeez Shaikh said that on the request of the business community the turnover tax on revenue was reduced from one percent to 0.5 percent which will help boost overall economic activities. The minister said an international institute would be set up in the Prime Minister House and the Prime Minister would reside in a smaller house.
He said the government has not increased its expenditures for the next year despite increasing inflation. He said that the government wanted to target the levy of two taxes in future - sales tax and income tax - while all other taxes would be gradually abolished.