- Says 'rescheduling domestic debt at present is foolishness'
In a lengthy post-budget briefing on Saturday, Federal Minister for Finance and Revenue Ishaq Dar stressed that the current government has “been able to halt economic downfall” and now wants to take the economy towards growth, adding that it intends to address all concerns of stakeholders regarding the budget.
For starters, with effect from Monday, two committees will be set up at the Federal Board of Revenue (FBR) to address budget anomalies, said the senator, while briefing media persons along with Minister of State for Finance and Revenue Dr Aisha Ghous Pasha.
Among many things, Dar talked about the country’s debt as well as the government’s decision to impose a 50% tax on the windfall gains of companies “after much deliberation”.
The finance minister added that the government plans to sell T-Bills to the general public directly in two weeks.
He said the economic growth target set by the government is achievable, while the defence budget is realistic, as are the non-tax revenue goals.
Dar also commented on addressing the country’s population growth, which he said was expanding at an “alarming” rate.
On domestic debt
The minister said there is no need to reschedule domestic debt. “Being a sovereign country, if you cannot meet your own currency requirement of the debt repayment, it is a serious situation.
“Rescheduling domestic debt at present is foolishness, especially at these interest rates. Once the policy rates decline to a reasonable level, then the short-term loans can be converted to the long term.”
Dar said he doesn’t think Pakistan has any issue with its domestic debt.
When it came to external debt, Dar said “we cannot print dollars, so the country needs to live within its means”.
“It is unfortunate that a number of measures have been taken that have dented the government’s flexibility in this regard, which needs to be reviewed,” he said.
Dar added that the budgeted amounts of loans of $2 billion and $1 billion from Saudi Arabia and UAE, respectively, are the commitments announced by the two countries earlier. “We expect that if the commitments are not realised till June 30, they will come next year,” he said.
Moreover, he said the Rs 696 billion budgeted funding from the IMF are the funds which are expected to be disbursed in the ninth and tenth reviews.
“It would be only fair that the ninth review is successfully completed, and Pakistan receives payment,” he said, referring to the lender’s stalled bailout programme.
Public Debt to GDP ratio
Dar noted that the Public Debt to GDP ratio was estimated at 66.5%, as he slammed the previous Pakistan Tehreek-e-Insaf (PTI) government for raising public debt liabilities from Rs30 trillion to Rs60 trillion.
“The increase in debt stock and policy rate is a killer, which is reflected in high debt servicing, the largest item in this budget,” said Dar. “I am hopeful that we are able to reverse this trend and reduce it.”
The finance minister said that the government remains in the process of engaging bilateral partners for external debt reprofiling.
“You service the debt but you don’t repay the interest, and that is negotiated but no write-offs or haircuts will be made,” he said.
Addressing a query, Dar said approaching the Paris Club, an informal group of creditor nations, is not part of the government’s plan.
“We cannot go for debt rescheduling on loans from multilateral development institutions, and will make payments on time. I don’t think it is dignified,” he said.
“There is no plan to go to multilateral development institutions, requesting them to reschedule our debt,” he said.
“However, we could negotiate bilateral loans and will talk to our bilateral partners after the budget process is over,” he said.
On economic growth
Dar said that the economic growth target of 3.5% is “achievable” and “not unrealistic”.
He noted that while multiple multilateral institutions including the Asian Development Bank (ADB) have “conservatively” projected a 2% growth, the International Monetary Fund (IMF) itself has said that the country could achieve a 3.5% growth, while Bloomberg and Fitch expect 4% growth.
“Growth will result in employment and will improve the macroeconomic indicators, reduce inflation and policy rate,” he said, adding that the government’s first priority is to achieve the 2017-18 macroeconomic indicators.
Noting that the budget envisages federal Public Sector Development Programme (PSDP) worth Rs1,150 billion, the highest ever in terms of its size, Dar said: “I believe that if the PSDP amount is invested transparently, the modest target of 3.5% economic growth is easily achievable”.
Giving the example of India, Dar also said Pakistan’s IT sector has great potential“ and the government has offered major incentives to it.
Defence budget ‘not too ambitious’
The finance minister said the defence budget of Rs1.8 trillion is not too high as compared to “our neighbouring country”.
“I believe this is not too ambitious and is realistic”.
Section 99-D windfall gains
Dar said dozens of countries tax firms on windfall gains, which come at the cost of consumers.
“The government, after research and discussion, decided that it should part of the law, which would be available after the Finance Bill is passed.”
Dar said that after much deliberation the government decided to impose a 50% tax.
“It is a positive thing, and those segments that profit from the exploitation of the public, I believe a bulk of that profit should come back to the exchequer,” he said.
An ‘agiculture revolution’
Noting that India’s East Punjab yield is double than Pakistan’s, Dar said: “We need to focus on improving our per acre yield. We want to bring about an agricultural revolution.”
He also said the government will “strictly monitor” disbursement of the agri-credit announced in the budget, adding that the State Bank will remain vigilant.
Weak SME sector
Dar said the country’s SME sector is “very weak” and the government is considering setup a rating agency to facilitate SMEs in seeking loans from banks.
In order to encourage remittances, overseas Pakistan will not pay final tax while purchasing property, said Dar.
For those who remit $50,000 to Pakistan annually, a ‘diamond’ category has been introduced through which several incentives will be provided to citizens abroad.
Non-tax revenue is ‘realistic’
Dar said that the target non-tax revenue of Rs2,963 billion is achievable.
“The non-tax revenue includes SBP profit, which is projected at Rs1,113 billion, second measure item is Petroleum Development Levy (PDL), which is projected at Rs869 billion. I believe these projections are very realistic,” he said.
“The government does not plan to increase PDL from Rs50,” he added.
On FBR tax revenue target, Dar was of the view that the Rs200 billion of new tax measures are not new and will not have an inflationary impact.
He said sales tax on the import of edible oil will remain, adding that “international prices have declined, which has been translated to the consumers.”
On privatization of state-owned enterprises (SOEs), Dar said that the privatisation of PIA and Pakistan Steel Mills is in advanced stages.
“We are deliberating on outsourcing of airports and the IFC (International Finance Corporation) is engaged as the transaction advisor.”
They have told us that companies from 12 countries are interested in this process. We are trying to start a bidding process of first airport outsourcing in July.“
‘Alarming’ population growth
Answering a question on the rapid population growth of the country, Dar said the issue is “alarming and needs to be addressed within religious boundaries”.
“The government is very seriously discussing this, as high population growth will eat away any development,” he said.
The finance minister said funding has been allocated for elections.
“However, we are not responsible for conducting elections, it is the responsibility of the Election Commission of Pakistan.”
Dar has repeatedly claimed that the Ministry of Finance has a ‘Plan B’ in the event that the IMF’s ninth review remains pending.
At Saturday’s press conference, he said once again that there is a Plan B, “but I would like to state that Pakistan would not default”.
Petrol cross-subsidy scheme
The finance minister said that the petrol cross-subsidisation scheme was “technically doable” but has nothing to do with the budget.
“As we are involved in a process of lending and borrowing, thus the scheme is not finalised yet,” he said.
Dar said he remains hopeful that Pakistan’s GSP Plus status, which gives the country duty-free access to the EU market, would be extended. He said the Ministry of Commerce is working with the authorities in this regard.
The minimum wage has been increased from Rs25,000 to Rs32,000 said the minister, noting it had earlier erroneously been published as Rs30,000.
“I want to categorically state there is no levy of sales tax on packaged milk,” Dar said, noting that it had been proposed but the government decided against it.
Dar presents ‘responsible budget’
On Friday, the Pakistan Muslim League-Nawaz (PML-N)-led coalition government presented the ‘election year’ budget for the fiscal year 2023-24 on Friday, amid serious economic challenges and protracted delay in the 9th review of the International Monetary Fund (IMF) programme.
Ishaq Dar presented the second budget of the coalition government with an outlay of Rs14.46 trillion and a budget deficit of Rs6.923 trillion or 6.5% of the GDP consequent to projected Rs13.320 trillion current expenditure against Rs9.2 trillion FBR revenue for the next fiscal year.
The provincial surplus has been projected at Rs650 billion and the overall primary balance of Rs380 billion or 0.4% of the GDP.
Dar, during his appearance on Geo TV hours after presenting the national budget on Friday, said Pakistan is speaking to its bilateral creditors to restructure its debt.
“We are in the process of engaging bilateral lenders to restructure debt”.
“No haircuts will be made … interest will be serviced, and principal payments will be staggered,” he said.
In order to unlock funding under its long-delayed 9th review, Pakistan is required to secure financing commitments to close the $6 billion gap.
To date, the authorities have managed to get commitments of $4 billion, mainly from Saudi Arabia and the United Arab Emirates (UAE).