Whether Pakistan can move towards its Recovery

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The last two days of January 2019 have been proved to be the indicative for the coming days. SBP has announced its IST quarterly review for FY 2019. The SBP says that the rising global crude prices in the first quarter of the fiscal year (July to September 2018) not only eclipsed the improvements in external sector but worsened the lingering inflationary pressures, following the second round of higher fuel prices and lagged impact of exchange rate depreciation impacting the broader economy.

Pointing out the mismatch between revenues and expenditures, the SBP says even after the 45.5pc drop in public sector projects, the fiscal deficit remained high, clocking in at Rs 541.7 billion, recording a jump of Rs100bn from the same period last year. The expenditures grew by 11pc during the quarter compared to 13.5pc in corresponding quarter last year. The financing burden fell largely on the State Bank, as well as non bank financial institutions. The consolidated revenues grew by 7.5pc during the quarter as against 18.9pc in first quarter last year.

Highlighting external pressures, the report remarks that the current account deficit declined slightly for the first time in two years, however it stayed at an elevated level of $3.6bn” during the quarter. High twin deficits as well as the increased likelihood of headline inflation have surpassed the annual target of 6pc.”

In order to revert to a stable macroeconomic environment over the medium term, the report underlines the importance of continuation of the right mix of polices laying particular emphasis on initiating the structural reforms in order to take the growth momentum forward.

With these words, SBP on 31st January increased its prime rate by 25 bp opening floods of another price hike. On this day Governor also admitted that SBP had allowed depreciation of PKR and there would be an increase in prices

Before these two events PTI government had given its mini budget on 23rd January, 2019. However in all three budgets announced for FY 2018/19, one by PML N and two by PTI, the element of relief for common people were and are missing.

On these subjects in a meeting of Karachi Editors club held at Beach Luxury Hotel on January 30, a briefing came from Former President of FPCCI Mr. Zubair Taufail. In participants prominent were Mubesher Mir, Manzar Naqvi, Mukhtar Aqil, Mukhtar Butt, Muhammad Arif, Naeem Tahir, Aleem Nawab, Dr Blilqees and Agha Masood.

It came before the meeting that country is in great crisis with twin deficits and Public Debt, Inflation, unemployment going up with fall in real GDP growth, FX Reserves and PKR value. So what can be done?

Mr. Zubair Tufail briefed that some relief has been provided to the business community by reduction in tax on inter-corporate dividends or elimination of the super tax on non-banking corporate. Most notably, the 49 per cent tax on SMEs has been reduced to 20 per cent, making it easier to open and conduct business in the country.

Interest on agriculture loans has been reduced from 49 per cent to 29 per cent. Also, duty on diesel engines for agricultural procedures has been set at five per cent from its current 17 per cent. Gas Infrastructure Development Cess will also be removed from fertilizer production.

Fixed tax on marriage halls has been reduced to Rs 5, 000. The ban on the purchase of vehicles for non-filers will be lifted for cars up till 1300CC capacity, but higher taxes will apply. Taxes on mobiles have also been amended, with taxes for the budget segments to be reduced, while high end luxury sets will become more expensive. Withholding tax on bank transactions will be waived off for tax filers.

Steps for the newspaper industry, small shopkeepers and owners of marriage halls in the form of reduction in tax rates have also been announced. Also included in the reduced duty rates or removal of regulatory duty are import of raw material/inputs for 135 tariff lines meant for plastic, footwear, tanning, leather, home appliances, diapers and chemical sectors. Regulatory duty was also announced for removal of input materials of around 200 tariff lines for manufacturing of automobile parts by local vendors.

On top of that, foreign financing from bilateral, multilaterals (IMF), launch of Pakistan, Banao Certificates, Panda Bonds, Sukuk and Eurobond and commercial financing would keep flowing to help build foreign exchange reserves to a comfortable level of import in the medium-term.

In this regard Pakistan bailout package $6 billion from Saudi Arabia including a one-year deferred payment facility for import of oil. UAE had pledged an amount of $3 billion with Qatar as well as of $ 3 billion with 4.5 billion from IDBP.

According to Mr. Zuabair Tufail these steps would provide some relief to Pakistan. After this in question answer session following facts came before the meeting.

Pakistan government total debt was Rs 20,768 billion on June 2017. In June 2018 it became Rs 24212 billion and now in January 2019 it has gone to Rs 30,876 billion showing an increase of 16.58% from June 2017 to June 2018 (i.e. within 12 months) and 27.52% from July 2018 to Dec 2018 (i.e. within 6 months) . This is drastic and shows immense failure of Imran Khan economic team.

On macro side, according to IMF estimates, Pakistan’s economic growth is expected to slow this year to four per cent, from the 5.8 per cent witnessed in 2018, and its fiscal deficit is set to hit 6.9 per cent of gross domestic product

The reasons for such situation are very simple if one looks in to Federal Budget 2018/19 figures. The total outlay of budget was Rs 5.9 trillion, resource availability was RS 4.9 trillion, net revenue was Rs 3.0 trillion, and provincial share in taxes was Rs 2.5 trillion.

The total expenditure was Rs 5.9 trillion with current expenditure as Rs 4.7 trillion. On expenditure two main heads were debt repayment with interest payments as Rs 1.620 trillion and on defense as Rs 1.1 trillion with pension as Rs 342 billion (Rs 260 for military pensioner and Rs 82 billion for civil pensioners).

Hence with debt repayment amount + Defense expenditure+ Provincial share whole budget is consumed and there remains no option but to borrow again for other expenses. This further increases inflation and effect poor class of the country that is already under pressure due to immense increase of prices in the last six months.

Now on current account deficit, it was $ 19 billion for FY 2018. In FY 2019 it would remain almost same or slightly at $13-15 billion mainly due to PKR depreciation. Export cannot go above $ 25 billion due to poor growth of cotton and non availability of gas and electricity. With such ground realities we cannot run the country though some aid from gulf and China.

This requires new game plan like focusing on tourism industry. For such we have to build some infrastructure with better law and order situation. Secondly we have to send our young generation to foreign countries especially gulf to generate additional remittance. We also need to focus on software development programs for other countries as India is doing. For generating revenue we have to bring legislation for Services, Agriculture, Whole sale and Retail sectors making 90% of economy. Further Government borrowing Act also needs to be changed by replacing current Public Debt Act of 1944.

Another important point was also emerged that is to make Karachi Editors Club a pressure group as a valuable source of information and experts’ opinion based on expert financial analysis to the government. Centre of Advisory Services for Islamic Banking and Finance (CAIF- website- islamicfinancecaif.com) is already doing the same on behalf of Karachi Editors Club.

However for doing so Imran Khan and his team with PML N and PPP leadership is required to change their life only for Pakistan by bringing reforms and changes in law through assemblies. For this they have to go though their Choices, their Mistakes, and their Lessons. If they have to find, who can change the Pakistan right now for its betterment than they all should look in to the mirror.

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