- Federal Minister for Finance & Revenue says reducing petroleum and electricity prices will not add to country's fiscal deficit
Federal Minister for Finance & Revenue Shaukat Tarin on Wednesday said that the International Monetary Fund (IMF) should not have concerns about the fuel and electricity subsidy package announced by the government last month, as it will not add to the fiscal deficit of the country.
Tarin was addressing media persons at the Pak China Friendship Center in Islamabad to share details about packages announced by the government.
Responding to a query regarding IMF concerns, the finance minister said negotiations have been held with the Washington-based lender.
“The IMF should not have concerns on the announced relief package, as we are not increasing our fiscal deficit, nor are we taking loans for the package. Our revenue collection has improved, which provided space for the package.
“We also have other revenue sources, which were not captured earlier including undeclared dividends of SOEs. Some funds will be taken from PSDP, while the remaining funds will be taken from amounts budgeted for Ehsaas and Covid programs,” he said.
The remarks come days after the finance ministry also expressed confidence that it will be able to defend a nearly $1.5-billion fuel and electricity subsidy package, during an IMF programme review.
"We are ready to address their (IMF) concerns, if any, about the merits of the relief package," the finance ministry spokesman Muzammil Aslam told Reuters then. "We have that fiscal space to fund this money."
Meanwhile, Tarin while referring to the relief package, under which the government decided to slash POL rates by Rs10 per litre and electricity prices by Rs5 per unit for the coming four months, said that the government has been providing subsidy to the public.
“Prior to the relief package announcement, the government was giving subsidy worth Rs39 billion in sales tax and petroleum levy on each fortnight, which adds up to Rs78 billion a month. It has further increased by Rs27.5 billion, which now stands at Rs104 billion in subsidy on POL products,” said Tarin.
“We believe that oil prices are unrealistically high, due to the Russia-Ukraine war,” said Tarin, adding that the government reduced PL (Petroleum Levy) and brought sales tax to nil to provide relief.
“On electricity prices, Rs5 per unit subsidy will be provided to consumers using up to 700 units in a month, which translates into a subsidy of Rs136 billion in the coming four months,” he said.
The finance minister added that the government also announced an industry relief package, to modernise the industrial sector of the country. “Our Large Scale Manufacturing (LSM) is moving healthily, however there should be further improvement in it.
“Under the relief package, the government is providing amnesty to those willing to invest in new industrial units. The minimum capital requirement for the amnesty scheme is Rs50 million, and under this scheme, factories would need to be set up by June 2024,” said Tarin.
The government announced a package for sick industries, said Tarin, as well as one for Overseas Pakistanis, under which they were provided a five-year tax holiday on their investments in the country.”
Terming the IT sector as the ‘saviour’ of Pakistan's economy, the finance minister said that last year it witnessed a growth of 47%, and in the ongoing fiscal it is growing by over 70%. “We want to give incentives to this sector in order to propel IT exports to $50 billion in the coming five years,” said Tarin.
“We could fill our trade gap to a large extent through IT exports alone, against Pakistan’s traditional exports that are growing at around 25-28%,” he said.
In incentives to the IT sector, the government has brought down capital gain tax to nil for five years, overall taxation has been brought to zero, and those working in the IT sector including freelancers can open foreign currency accounts.
“With these initiatives, we believe that the IT exports would increase,” said Tarin.
On economic indicators, Tarin said that Pakistan’s trade deficit has declined on a monthly basis, dropping to $3.1 billion. “Having a remittance of around $2.5 billion shows that the trade deficit has been brought down to $500-600 million, which is a big development that was not highlighted,” he said.
According to PBS data, the trade deficit narrowed by 9.6% on a month-on-month basis from $3.427 billion in January 2022 to $3.095 billion in February 2022.
On inflation, Tarin said that the inflation rate dropped to 12.2% on a year-on-year basis in February 2022, compared to an increase of 13% in the previous month.
“From November till February the inflation rate has remained flat, this means that if we exclude the impact from the international commodity cycle, the government has managed to bring domestic prices under control.”
Talking to media persons, the finance minister said that Pakistan will exceed the revenue target set in the last budget for the current financial year.
“Revenues would hit Rs6.1 trillion, compared to a target of Rs5.8 trillion. The government is giving subsidies worth Rs800-900 billion on POL, if that was not the case, the revenue could have hit Rs7 trillion,” he said.
He also commented on a query on the prime minister's reaction to the heads of foreign missions in Pakistan urging Islamabad to condemn Russia's hostility against Ukraine in the UN General Assembly during a speech in Vehari in Punjab.
“I think it’s my prime minister’s right, if he perceives there are double standards. He [PM Imran] only reacted to that [foreign envoys letter to Pakistan ], and did that publicly, which he shouldn’t have,” he said.
Earlier, PM Khan in his speech at Vehari hit back at a letter written by ambassadors of the European Union to Pakistan asking for a statement and vote against Russia.
“EU ambassadors demanded Pakistan to condemn Russia's action in Ukraine, did they demand the same from India?” the premier questioned, reiterating that Pakistan will make decisions in its national interests. “We are not here to serve anyone’s interests,” he added.