ISLAMABAD: Finance Minister Dr Abdul Hafeez Shaikh has testified before the Federal Cabinet that the incumbent government has spent Rs 3 trillion on effecting a much-needed correction in PKR-USD exchange rate since the PTI came to power and also borrowed money used to meet tax collection shortfall due to Covid-19.
He shared these facts with the Federal Cabinet on January 26, 2021 while highlighting the current debt situation of the country.
The Federal Cabinet meeting presided over by Prime Minister Imran Khan was informed that the country's debt has increased by 46 per cent during the last two years.
"At present, Pakistan's total debt is the Rs 36,500 billion, whereas it was 25,000 billion rupees when the present government took charge in 2018," he said, adding that out of the Rs 11,500 billion borrowed during past two years, 6,000 billion rupees was paid for debt servicing; Rs 3,000 billion for effecting correction in dollar exchange rate and Rs 1,500 billion was utilized as subsidies and to meet the tax collection shortfall due to Covid-19. He, however, did not clarify as to how much was spent to bridge shortfall in tax collection. He also briefed the Cabinet that primary balance was in surplus in last two quarters of financial year 2020-2021.
Ministry of Planning, Development and Special Initiatives, informed the Cabinet that the growth target for LSM is 2.5 per cent for 2020-21 against 5.3 per cent growth in FY 2019-20. However, during the first six months (July-December) 2020-21, this sector registered 7.4 per cent growth. The target of inflation (CPI) is 6.5 per cent for 2020-21 against 11.1 per cent in 2019-20, whereas during the first half of current fiscal year it was recorded 8.6 per cent. In July- December, CPI was 8 per cent. Core inflation (urban) was 6.4 per cent whereas core inflation in December was 5.6 per cent. SPI inflation was 11.5 per cent during the first six months of current fiscal year while SPI in December was 9.1 per cent.
Current Account Balance was 1.1 per cent during July-December 2020-21 against the whole year target of 4.4 per cent. It was 2 per cent in corresponding period of 2019-20, showing a change of 156 per cent. Export (fob) recorded a decline of 5 per cent to $ 11.8 billion during the first half of current fiscal year as compared to $ 12.4 billion during the comparable period of the previous year. The export target on fob for 2020-21 is $ 22.7 billion. Imports have posted a growth of 5 per cent during this period. Services trade balance was 38 per cent positive whereas remittances have shown a growth of 24.9 per cent during July-December 2020-21. Exchange rate (average December) was Rs 160.1 against 1 dollar in July-December 2020-21 whereas it was Rs 154.9 to a dollar in July-December 2019-20.
Tax collection posted a growth of 4.9 per cent, PSDP expenditure grew by 7.4 per cent, whereas fiscal balance was 2.6 per cent negative in July-December 2020-21 as compared to 2.3 per cent in the same period of 2019-20.
Minister for Planning, Development & Special Initiatives (PD&SI) Asad Umar stated that economic indicators exhibited a positive trend during the period under discussion. Current Account balance had attained a sustainable level. Exports showed a very positive trend, which was the highest in many years. Remittances from abroad were higher than those of the previous year. Agriculture sector was giving a positive signal, except cotton, which could not meet the mark due to heavy crop loss in Sindh caused by rains. Manufacturing sector exhibited a “phenomenal” growth, resulting in substantial employment generation. Private sector borrowing has also shown a positive growth. The economy was on the right track in a situation when most of the developed countries were still struggling to come out of the Covid-setback.
The Prime Minister suggested to carry out a comparison of key economic indicators with neighbouring economies so as to gauge the real impact of the economic policies of the present government.
The Cabinet took note of the presentation delivered by Minister for Planning Development and Special Initiatives and directed the economic team of the government to apprise both the Houses of Parliament and the general public about the current economic growth rate and the steps taken by this government.
The Finance Division told the Cabinet that Section 4, read with sections 6 and 7, of the Fiscal Responsibility & Debt Limitation Act, 2005 (FRDLA 2005) stipulates that the Federal Government shall cause to be laid before the National Assembly the statements of fiscal and debt policies by the end of January each year. Section 6 of the FRDLA 2005 states that the fiscal policy statement shall, inter alia, analyze key macro-economic indicators, namely total expenditures, total net revenue receipts, total fiscal deficit, total federal fiscal deficit excluding foreign grants, total public debt and debt per capita. Moreover, the Federal Government shall explain how fiscal indicators accord with the principles of sound fiscal and debt management. It also contains key fiscal measures and rationale for any major deviation, strategic priorities, policy decisions and evaluation of policies. Accordingly, Finance Division had prepared the Fiscal Policy Statement for the FY 2019-2020 on the basis of the actual data.
Finance Ministry further noted that section 7 of the FRDLA 2005 specifies that the purpose of the Debt Policy Statement is to allow assessment of Federal Government's Debt Policy against principles of sound fiscal and debt management and debt reduction path. The Debt Policy Statement must contain assessment with regard to: targets of total public debt to estimated GDP, evaluation of external and domestic strategies; analysis of foreign currency exposure; authentic Information on public and external debt and guarantees; information of all loans and analysis of trends in public debt and external debt.
The provisions of the FRDLA 2005 also require that every economic policy statement shall incorporate, to the fullest extent possible, all Federal Government decisions and all other circumstances that may have material effect on the fiscal and economic situation of the country.
Furthermore, every statement shall include statements of responsibility by the Finance Minister and Finance Secretary. Accordingly, the Federal Cabinet was requested to approve the Fiscal Policy Statement and Debt Policy Statement for FY 2019-2020 to be placed before the National Assembly as per requirements of the FRDLA 2005. The Cabinet approved the Fiscal Policy Statement and Debt Statement to be presented in the National Assembly.
Copyright Business Recorder, 2021