Finance Minister Dr Abdul Hafeez Sheikh has said that Pakistan’s economy continues to show signs of recovery with improvement in key macroeconomic indicators. Despite major external and internal shocks, the economy has shown resilience and is projected to grow by 4.3 percent in FY13 after a healthy growth of 3.7 percent in FY12. Exports continue to show a healthy growth, remittances remain strong keeping foreign exchange reserves stable and most importantly inflation has continued to show a declining trend.
The goal is to build on these positive trends and insulate the economy against any potential external shocks such as a rise in oil prices and global contagion, Sheikh said while addressing the inaugural sesson of PSDE on “ Economic Reforms for Productivity, Innovation and Growth” on Tuesday.
He said the Government has successfully doubled the tax collection from Rs.1 trillion to Rs.2 trillion in the last four years; remittances have more than doubled from US$ 6.4 billion in 2007-08 to US$ 13 billion by year end 2011-12. Inflation has moderated to 8.8% in the first four months of FY13. Exports are likely to cross the target of US$ 26bn in FY13. Hard budget constraints are being ensured to maintain fiscal discipline and expenditure has been curtailed to 35% of the budget in the first four months of FY13.
Sheikh said fiscal austerity measures of Rs15bn including freezing of non salary current expenditures and ban on new recruitments are currently under implementation. Austerity measures have been deepened under which current expenditures is being curtailed. Fiscal deficit is projected to be contained at 4.7% of GDP during FY13.
He said the security situation has affected the business environment and attractiveness in the eyes of the investors. A key challenge is to increase the foreign direct investment which has declined in recent years largely due to adverse security situation. To encourage private sector and to make the investment climate more attractive, the investment policy 1997 has been revised. A new investment strategy (2010-2015) has been formulated in consultation with federal and provincial governments. BoI is currently in the process of finalising MoUs with Investment Promotion Agencies (IPAs) of Argentina, Kuwait, Tajikistan, Sudan, Jordan and Egypt. In order to facilitate foreign companies/entities, their online registration with BoI has been initiated. All these measures have a lot of forward and backward linkages, which will support economic growth process in the long run.
The finance minister said the government initiated important mega projects in energy and infrastructure sector which would provide the economy a base for sustainable economic growth in future. Some of the initiatives include: Neelum-Jhelum Hydropower Project, Diamer-Bhasha Dam, 4th Tarbela Extension Project; Chashma Nuclear Power Projects 3 and 4, Lyari Expressway, Mekran Coastal Road, M4 Motorway from Faisalabad to Khanewal, KKH Skardu Road and Realignment of KKH Road due to Attabad Lake. Mega projects completed during the period include Chashma Nuclear Power Project 2, Mangla Raising Project, Mirani Dam Project, Islamabad Peshawar Motorway and Islamabad Muzaffarabad Expressway. Overall, 650 projects worth Rs. 300 billion have been launched.
He said a major effort is being made to significantly improve the tax to GDP ratio. The aim is to achieve this through expanding the tax base and developing an equitable and efficient revenue mobilization system. Due to the ongoing reforms, revenue collection is expected to achieve an increase of 25% with FBR revenues growing to Rs 2,381 billion in FY13. Government has signed the Afghan Transit Trade agreement and undertaken a major reform of the refunds system to ensure timely refunds to the business community.
Measures were taken in March 2011 and reinforced in the budget in June by removing sales tax exemptions and zero-ratings on major sectors. He said in the current budget the government has done away with many taxes and tax slabs have been reduced. 700,000 new potential tax payers have been identified by using third party data sources out of which 500,000 have been issued notices and assessment is underway. Amnesty Scheme is under finalization for bringing in new taxpayers. Focus is to ensure provinces who after the 18th amendment are financially and administratively more autonomous, are being engaged to generate revenue and broaden the tax base especially in areas of agriculture, services and real estate.
Sheikh said Pakistan continues to fruitfully engage with multilateral and bilateral partners to ensure continued access to international funding. Funding in terms of receipts from privatization, launching of 3G license and money due from US government will secure external funding this year. Pakistan’s debt to GDP ratio stands at under 60%. There has been significant improvement since 2001 when the ratio exceeded 82.9% of GDP.
He said the foreign exchange reserves remain stable at US$14 billion. Due to repayments to the IMF during the coming years, the external debt is expected to reduce further. Most part of the Pakistan’s external debt falls under concessional loans obtained from Paris Club, bilateral loans, and those obtained under multilateral agreements such as that under the IMF program. To ensure financial discipline, the Government is committed to adhere to policy of net zero quarterly borrowing from SBP and intends to pay off the outstanding stock of SBP credit in 8 years.
He said major restructuring and reforms in Public Sector Enterprises (PSEs) and energy sector have been undertaken to reduce burden on budget and improve service delivery. Government has undertaken key structural reforms in the power sector under the Power Sector Reform Plan targeted at improving governance and legal framework and ensuring financial sustainability. In addition 3,334 MW has been added since 2008. Ongoing reforms have resulted in relative stability in the power sector and power shortages have been minimized along with reduction in line losses and improved recovery of arrears.
He said import of LNG and natural gas from neighbouring countries are being pursued to overcome the energy crisis. Extensive work is being done on turn-around plans of key PSEs. Restructuring plans of PIA, Pakistan Railways and Pakistan Steel Mills are under implementation and consequently haemorrhaging has been curtailed in these PSEs along with improvement in service delivery. Measures are being strengthened to restructure key PSEs with sound governance structures and professional management.