ISLAMABAD: Minister for Finance Senator Mohammad Ishaq Dar has said that the government’s policies were directed towards sustainable economic growth for achieving socioeconomic prosperity of the country.
“The government has prepared a 3-year road map for achieving medium term targets under which Gross Domestic Product (GDP) growth is to gradually rise to around 6-7 percent, investment to GDP ratio to rise from 12.6 percent to 20 percent, Tax to GDP ratio to rise from 8.5 percent to 13 percent, fiscal deficit to be brought down from 8.8 percent to 4 percent of the GDP, foreign exchange reserves to be increased to around US $ 20 billion, public debt to be reduced to below 60 percent of the GDP as per statutory requirement”, Dar told the members of the Federal Cabinet in a meeting which was chaired by Prime Minister Nawaz Sharif.
Highlighting the situation of national economy in June 2013, he told the Cabinet that economy was weak and fragile. He said that growth rate averaged less than 3 percent in the last five years -significantly below our potential, inflation averaged around 12 percent, foreign exchange reserves were at US $ 11 billion in June 2013 despite significant support from the IMF during last five years and the circular debt of Rs.503 billion was crippling the power sector and the economy.
Ishaq Dar told them that investment to GDP ratio was declining continuously and had reached to 12.6 percent while Tax to GDP ratio had declined to 8.5 percent, fiscal deficit of 2012-13 was to close at 8.8 percent, debt to GDP ratio has increased in last five years from 52.6 percent of GDP to 62.7 percent of the GDP. About Public debt, he said that it was 2.94 trillion on June 30, 1999, increased to Rs.6.04 trillion on June 30, 2008 and further increased to Rs.14.36 trillion on June 30, 2013.
He said that budget for financial year 2013-14 was presented on June 7, 2013 in which a fiscal deficit was targeted at 6.3 percent for the current financial year as against fiscal deficit of 8.2 percent (with provincial surplus 8.2 percent) for financial year 2012-13. The government, he said in the budget 2013-14 announced austerity measures under which secret service expenditures of 32 ministries /divisions/attached departments /autonomous bodies ceased except ISI and IB.
He said that 40 percent cut in PM office and 30 percent cut in all ministries/divisions current expenditures were implemented except pay and allowances with saving of around Rs.40 billion. He further said that workings of foreign missions were reviewed and being right-sized leading to an annual savings of Rs.2 billion.
The Finance Minister said that Cabinet Committee on restructuring has directed all the ministries /divisions to review for rationalizing their strengths for the purpose of right-sizing.
He said that fee/remunerations for government nominated directors in Public Sector Entities (PSEs) were capped at Rs.600,000 per annum and amount over and above will be deposited into government treasury.
He added that duty free import of luxury cars for VVIPs that was banned through budget/trade policy during 1998-99 was lifted and duty free import of cars to VVIPs was again allowed in 2005-06. However, he said that the old ban has been re-imposed through budget speech on June 12, 2013.
Ishaq Dar said that circular debt of Rs.503 billion was inherited after retaining GOPs claims of liquidated damage against Independent Power Producers (IPPs) amounting to Rs.23 billion, remaining Rs.480 billion were settled. He said that due to non-payment sovereign guarantees of GOP were invoked. He said that nine IPPs had gone to Supreme Court against the Government. He said that interest cost for each day of delay was at the rate of 14 percent (4 percent -KIBOR) amounting to Rs.67 billion per year. He said that foreign governments were agitating due to non-payments to their nationals who had shares/stakes in IPPs.
Dar said that approximately 1,700 MW of power was not available resulting into massive load shedding with almost no industrial growth. Explaining the benefits of circular debt payment, Dar said that additional 1,700 MW of electricity was added into the national grid. He said that Large Scale Manufacturing grew by 6.8 percent in first quarter of the current financial year ended on September 30, 2013 as compared to 0.4 percent in the same period of last fiscal year.
He added that the withdrawal of cases from the Supreme Court and cases of invoked sovereign guarantee became fructuous and increased investors’ confidence.
He added that reduction in load shedding in commercial and domestic sectors in the last two and half months was virtually zero. However, he said due to canal closure and decline in hydel power generation, some load shedding has become inevitable.
He added that agreements with four IPPs for conversion from furnace oil to coal -based with 24 months would lead to savings and lower cost of electricity generation in the country.
About the financial gains of the clearance of the circular debt, the Minister said that by paying the debt government has saved Rs.67.2 billion of the national exchequer while annual net gains in savings would be Rs.54.4 billion.
Finance Minister Senator Mohammad Ishaq Dar said that to arrest the re-emergence of circular debt, a provision of Rs 220 billion subsidies was made in the budget 2013-14.
He said that Rs 101 billion have been paid to date in addition to Rs 30 billion being released today (Wednesday). He added that reported outstanding amount was due to non-payment of primarily by provinces and private consumers. The institutions of the Federal Auditor, he said was being activated in consultation with the provinces.
About International Monetary Fund (IMF), the Finance Minister said that foreign exchange reserves of $18.2 billion (including $7.9 billion) received under Standby arrangement of 2008 from the fund has fallen to $11 billion when PML-N government was sworn in June 2013, while an outstanding liability of $3.1 billion was still payable to the IMF. He added that government negotiated for extended fund facility (EFF) of $6.64 billion in September 2013.
The Finance Minister said that foreign exchange reserves falling on account of overall negative inflow , thereby resulting in decline of foreign exc reserves of US $ 11 billion (June 2013) to US $ 8.4 billion in December 2013. He said that as was generally predicted internationally that Pakistan will go in default by early 2014, one option was to declare default and go to Paris Club.
This he said would have had grave consequences with no development partners like WB, IDB, OPIC, IFC, JICA and others would have dealt with Pakistan resulting into no financing of development projects like Dasu, Jamshoro, Neelum-Jhelum transmission line, Karachi circular railways, motorways, energy etc.
“As an honourable country, we decided to honour our international commitments and the new programme shall not add to the present public debt burden.
Pakistan, he said, has no choice but to borrow new money to pay off instalments of old debts which have become due.
He added that major purpose of was also to send a signal to international community that Pakistan as a sovereign and dignified country can manage to honour its past international commitments under the leadership of Prime Minister Nawaz Sharif.
He told the Cabinet members that current programme is mainly home -driven emanating from PML -N manifesto on the basis of which General elections 2013 were contested.
He added that government has placed IMF documents on the website of the Ministry of Finance. “Having seen our budgetary measures and economic reforms, positive signals for the country’s are re-engagement of World Bank/ADB/IDB/JICA and others besides the overseas private investment corporation (OPIC) and International Finance Corporation (IFC) have tripled their allocations /credit lines for Pakistan”, he remarked.
Ishaq Dar said that Standard and Poor’s has given stable outlook for Pakistan and Overseas International Chambers of Commerce has raised its index for Pakistan from -34 to +2.