ISLAMABAD: All Pakistan Textile Mills Association (APTMA) has said that the terms of new programme with International Monetary Fund (IMF) will set Pakistan’s economic trajectory for the next three to five years.
In a letter to Finance Minister Muhammad Aurangzeb, Association’s Chairman Asif Inam cited IMF’s estimates: Pakistan’s gross external financing requirements stand at over $ 25 billion annually for the next five years; and the three sources of foreign exchange to meet these requirements are through foreign borrowing, remittances, or exports, the latter being the most sustainable, resilient and inclusive.
He added that exports cannot thrive under prohibitive anti-export policies that have been implemented over the past year and beyond. High taxes and persistent delays in refunds have squeezed out all liquidity from manufacturing sectors that represent only about 20 percent GDP but are responsible for over 60 percent of tax revenue with as much as 20 different federal and provincial taxes imposed on manufacturing firms. Adding fuel to the fire, power tariffs for industrial consumers have skyrocketed to over cents 17.5/kWh, over twice the regional average, while gas prices have also increased by 223 percent since January 2023, leaving no financially viable source of energy for manufacturing activities in Pakistan.
Letter to finance minister: APTMA calls for ‘export-centric’ policies
APTMA argues that industrial consumers are major contributors to power sector fixed costs. As their consumption declines, the fixed costs need to be spread over a small pool of consumption, thus necessitating higher power tariff for all other consumers as reflected in unusually high quarterly tariff adjustments which stood at Rs 7.5/kWh for second quarter of FY 24. These effects then slipover to the sectors of the economy as, for instance, reduced industrial production and therefore lower tax contribution and employment. This, then results in supply-side inflationary pressures that necessitate prolonged period of high interest rates that have burgeoned the government’s debt servicing costs, heightening fiscal sector vulnerabilities and constrained the private sector of much needed liquidity and working capital.
“As we are preparing to enter another IMF programme, the terms of which will most certainly define the economy’s trajectory for the next three to five years, the focus should be placed on bringing informal sectors into the formal economy and stimulating industrial activity to dilute public debt servicing costs through economic rather than taxing all productive activities to extinction, whether through explicit taxes like income and sales tax or hidden once like cross subsidies embedded in power tariffs,” wrote Asif Inam.
According to APTMA’s estimate, power tariffs of cents 9/kWh could increase power consumption in just the textile sector by up to 1,530 MW/annum to bring in an additional $ 1.06 billion in power sector revenue, around $ 9 billion/ annum in additional exports, and an addition of over $ 513 million to government revenue through various channels. Additionally, these lower power tariffs will also prompt an automatic shift from captive gas-based generation that currently cost around Rs 33/kWh (cents 11.8/kWh) to grid electricity, freeing up domestic gas-based resources as well as reducing the LNG import bill.
“The government must implement confidence-inspiring economic policies and meaningful structural changes rather than continue the downtrodden path of short-term remedies at the cost of medium and long-term economic growth and align its policies with the needs of a modern, diverse industrial base, one that can compete effectively in international markets,” he said.
Copyright Business Recorder, 2024
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