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May 26, 2019

Cut in civil and military outlays planned

Top Story

May 26, 2019

ISLAMABAD: Adviser to the Prime Minister on Finance Dr Abdul Hafeez Shaikh Saturday said the details of the IMF programme would not be shared unless approval of the Pakistan-IMF staff level agreement by the Fund’s Executive Board. The staff level agreement for $6 billion package was struck for 39 months on interest payment of 3.2 percent.

Addressing a news conference here, he unveiled the short-to-medium term roadmap for achieving ‘stabilization’ under the IMF programme mainly relying on the austerity drive, with participation of both civil and military institutions and revenue mobilization in the next budget. Dr Shaikh said the civil and military leaderships are on the same page with regard to participation in the austerity drive. However, on the question of cut in the defense budget, he did not reply categorically but said, “given the country’s geographical position and a hostile neighbor, we all would sacrifice to defend the dignity, respect and security of our borders.”

“The power and gas tariff would be increased but life consumers would be protected, as the government is going to allocate a subsidy of Rs216 billion in the upcoming budget. The FBR will be assigned to collect Rs5,550 billion in the upcoming budget,” he added. He was flanked by Adviser to PM on Information and Broadcasting Firdous Ashiq Awan, Minister for Planning Khusro Bakhtiar, Minister for Power Omar Ayub, Minister of State for Revenues Hammad Azhar, Secretary Finance Naveed Kamran Baloch, Chairman FBR Shabbar Zaidi and DG ERU Dr Khaqan Najeeb. He said the government did not have any power to reduce oil prices. “If the oil prices escalate in the international market, the government is left with no option but to hike the POL prices and subsequently the power tariff also goes up, causing inflationary pressures.” He said the bulk of power consumers or about 75 percent used less than 300 units so in case of hike in the power tariff they would be protected. “There would be 40 percent gas consumers who will also be protected from any hike. Stabilization under the IMF programme would be achieved in 12 months after which the focus would be on growth for generating jobs. Tax break would be given to the private sector that would provide jobs to graduates to incentivise them. The programme of 5 million housing units will create jobs, as land has been acquired and now financing arrangement would be done. The agriculture uplift programme would get an allocation of Rs250 billion.” He said those criticising the government for going to the IMF must tell which government in the past had not availed itself of the bailout.

Federal Minister for Power Omar Ayub said the last PML-N had laid landmines in different shapes, as circular debt had increased to Rs38 billion per month and they did not hike the tariff keeping in mind the general elections. “Now we are clearing all the landmines by taking tough decisions, as recovery from the private sector has gone up by Rs81 billion and with the public sector it has touched Rs91 billion. He said if there was no dearth of power last year then why the government resorted to power cuts during the holy month of Ramazan. Dr Abdul Hafeez Shaikh termed the next budget a year of stabilization as they wanted to steer the economy out of risk zone and then move towards growth trajectory in years to come after achieving macroeconomic stability.

The upcoming budget will focus on austerity in order to reduce expenditures with participation of both civil and military institutions. He highlighted three major areas for undertaking structural reforms by relying upon the austerity drive. Secondly the electricity losses would be cut down and the flow of losses would be brought to zero by December 2020. Revenue mobilization, he said, would be another important area of focus in next budget, as the FBR would be assigned to collect Rs5,550 billion for jacking up tax to GDP ratio that stood at 11 percent of GDP at the moment. He said the tax to GDP ratio in other regional comparable countries ranged from 16 to 20 percent. He deplored that the narrowed tax base is causing real problem and stated that only 360 companies and individuals contributed upto 85 percent of total tax collection. “There are 340,000 industrial connections but only 40,000 are registered with the tax system,” he added. “The FBR has obtained data from 28 countries about 1,52,000 Pakistanis owning bank accounts and real estate assets. There are 100,000 companies registered with the SECP but 50 percent did not file returns,” he said and added tax collection could not be done without seriousness.

Shaikh said the government is going to allocate Rs30 billion for food subsidy in the coming budget. The allocation for safety net under Ehsas programme will be doubled from Rs100 billion to Rs180 billion. He said the incumbent regime took over power when the debt had touched Rs31,000 billion and the foreign debt stood at $100 billion. The foreign currency reserves, he said, had declined from $18 to less than $10 billion in last two years of PML-N. The current account deficit had touched $20 billion and the budget deficit stood in absolute figures of Rs2.3 trillion. In a bid to avoid a full-flown crisis and stop the situation from going out of control, he said the government managed $9.2 billion from friendly countries including China, Saudi Arabia and the UAE. The circular debt that used to go up by Rs38 billion a month has dropped by Rs12 billion to Rs26 billion. Devaluation that kick-started in December 2017 continued but in this course of action growth lost its momentum. The policy rate hiked and imports were compressed and the current account deficit has reduced by $4 billion. He outlined six major developments going to occur on the economic front within next few weeks and said the Pakistan-IMF staff level agreement would be presented before the Fund’s Executive Board within weeks for getting approval and making the program operational.

He said Benami law has become operational and the government has introduced the assets declaration scheme to whiten black economy. Third the oil facility on deferred payment worth $3.2 billion from Saudi Arabia would become operational from July 1, 2019. Fourthly, the programme loans from the World Bank and Asian Development Programme would resume. Fifth, he said the upcoming budget would be announced to give signal to the world that Pakistan is taking steps in line with the IMF programme to achieve financial discipline. Lastly, he said the IDB’s oil facility on deferred payment worth $1.2 billion would continue in the next fiscal year.

Shabbar Zaidi said Benami law was passed two years ago but it was not made operational and now the PTI government has issued rules and made it operational. He said the FBR would take action against those not availing themselves of the asset declaration scheme after its expiry. He said there are omissions or mistakes in their tax records, as the FBR had obtained data from 28 countries about 1,52,000 Pakistanis and it had given them the last chance to avail themselves of the amnesty scheme.

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