WASHINGTON - Pakistan’s new Finance Minister, who has already moved to pull the economy from the brink and garnered vital support from the International Monetary Fund, said in an interview that the country now will launch a wide-scale privatisation programme as it seeks to meet ambitious growth targets.
Finance Minister Ishaq Dar aims to double the economy’s growth rate.
Under the previous administration of the PPP, investment had collapsed, the budget deficit had jumped to well over 8 per cent, public debt had ballooned, and depleted foreign-exchange reserves meant Pakistan was in danger of defaulting on $3 billion of international loan repayments due this financial year.
“We inherited an economy that was in a serious state of imbalance,” said Finance Minister Ishaq Dar, a confidant of Prime Minister Nawaz Sharif, who trounced PPP in May elections and took office the following month. “Pakistan was at a critical stage.”
Since then, the government managed surprisingly quickly to remove the $5 billion chain of “circular” debt that was choking the crucial electricity sector, by paying off and restructuring the liabilities. A roughly 60 per cent increase in electricity tariffs to consumers-an unpopular step-will be implemented fully by October, in an attempt to stop the debt from accumulating again, the Wall Street Journal said on Thursday.
To protect its foreign reserves, the government also secured this month a $6.6 billion loan from the IMF, winning guarded praise from the fund for its agenda. For the past three years, multilateral lenders had shunned Pakistan.
The loan, which is designed only to allow the country to make the repayments on the previous, lapsed IMF programme, should instill more confidence in the country, analysts said.
Dar said that, as a result of the planned overhauls, he seeks to double the economy’s growth rate, currently barely keeping up with the population increase, to 6 per cent in three years.
Ishrat Hussain, a former Governor of Pakistan’s central bank, cautioned that the IMF conditionalities, based on stabilisation and fiscal discipline, would make meeting such high growth targets a challenge.
“The government is moving in the right direction,” said Ishrat Hussain. “After five years of stagnation, people are expecting a revival of growth, but the IMF programme takes away some freedoms. This will be a major balancing act for them.” Analysts warn that the new economic strategy can’t be realised unless Islamabad also tackles the country’s other major crisis: security.
A raging Islamist insurgency in the northwest that also menaces the rest of the country, coupled with endemic organised-crime violence in Pakistan’s commercial heart, Karachi, has spooked investors.
Dar says he is aware of the challenge.
Publicly owned enterprises have become a major burden on the economy, losing between $4 billion and $5 billion a year, said Dar, adding: “Surely we can’t keep bleeding like that.”
The government’s plan is to privatise around 35 public corporations in the next three years, he said. This month, the government announced the first on offer: a minority stake in PIA, the troubled national carrier.
Increasing tax revenue is another priority. Only about one million people pay income taxes in Pakistan, a country of 180 million. Diplomats state that international community, tired of lavishing aid on a country whose own elite refuse to pay their taxes, is eager to bring more Pakistanis into the tax net.
Dar said he aims to add 500,000 taxpayers over the government’s five-year term, raising tax revenue as a proportion of Gross Domestic Product to 15 per cent from the current 8.5 per cent.