Adviser to the Prime Minister on Commerce, Textile, Industry & Production and Investment Abdul Razak Dawood has said though there is economic stabilisation in Pakistan the country has still not seen economic growth.
He was speaking at a talk on ‘Business-Way Forward’ organised by the English Speaking Union of Pakistan at a hotel here on Saturday.
“But there can be no growth without stabilisation,” he pointed out, saying that the challenge for Pakistan is to change from an import consumption country to a country with exports that go up to two hundred million plus.
Minister of State @Hammad_Azhar on Pakistan's growth projections. Despite inheriting lesser deficits previous Govts also had to go through stabilisation periods. GDP growth decreased from 5% to below 1% in first year of PPP & inflation crossed 10% in first 8 months of PMLN. pic.twitter.com/GRPmw0tcnr
— PTI (@PTIofficial) April 12, 2019
Economic stabilisation refers to a series of fiscal and monetary policies designed to reduce an unsustainable budget deficit that would require specific targeted measures supported by the IMF inclusive of: (i) raising revenue; (ii) reducing expenditure; and (iii) ensuring a discount rate and other initiatives able to mop up excess aggregate demand with the overarching objective of reducing inflationary pressures; in Pakistan’s context, it is relevant to note that historically SBP, unlike the Ministry of Finance, follows IMF pre-programme condition to raise rates.
“We must be able to have at least seven per cent GDP rate for next several years, when Pakistani brands are respected and known to stand for quality and reliability,” he said.
He said that as an import consumption country, Pakistan has been borrowing from the International Monetary Fund (IMF). In the last 30 years, Pakistan has had to borrow 13 times from the IMF. And then the country has also had to agree to IMF’s conditions. “When this government came in, we were losing foreign currency. I was not even certain about economic stability, but I’m an optimist. Things are improving and moving in the right direction,” he said.
A tax gap analysis recently completed by the World Bank indicates that Pakistan’s tax revenue would reach 26 percent of GDP if tax compliance were raised to 75 percent
“I know every country has issues. Like, there were Malaysia and Turkey which had a major crisis, but after reforms their economies are back on the path to recovery,” he said.
“And along with that Pakistan also faces a taxation issue. It is a daunting task. People say to us ‘who are you?’ They say they will not pay their taxes as they did not vote for Imran Khan. What is to be done with all this going on? Should we give up or should we fight back? But we have to be able to turn this country around into a country where all people pay taxes,” he said.
An unusual decline in revenue collection and steep rise in current expenditures caused a deterioration in all major fiscal indicators during FY19. The overall budget deficit during the year stood at a historic high of 8.9 percent of GDP, which was also in excess of the 4.9 percent target set in the Budget 2018-19. Meanwhile, the primary and revenue balances worsened substantially, highlighting growing debt stress for the government and a shrinking space for the needed development expenditures—State Bank of Pakistan, Annual Report 2018-19—The State of Pakistan’s Economy.
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A tax gap analysis recently completed by the World Bank indicates that Pakistan’s tax revenue would reach 26 percent of GDP if tax compliance were raised to 75 percent—World Bank $400 million Pakistan Raises Revenue Project.
Coming back to trade, he said that there was a need to talk more about exports than imports. “We need an export-led growth. Pakistan is a country where 47 per cent of our revenue is used on imports. We have to bring it down but in order for us to do that we have to pay our taxes,” he said.
Exports volumes are on the rise; however, they need a price push as unit price declined. In FY 2019-20, Pakistan’s total export quantity increased by 12%. The textile industry witnessed 26% growth in volumetric terms because of getting regionally competitive energy tariffs. However, due to a significant decline in textile prices globally, this increase in export volumes did not translate into substantial value terms.
The construction industry is also picking up as both the local sales and export numbers of cement have registered double-digit economic growth.
“Another big challenge we have faced head on is not talked about that much. For the last 30 to 40 years tariff has become a tool for generating revenue. But we need proper checks and balances here if we want proper governance,” he said, adding that they needed a long-term tariff policy along with a long-term industrial policy and a trade policy.
“We also need to see what are our exports and which countries we need to concentrate on for these exports. We should be able to set ourselves a target. A good trade policy will take us in a good direction. But we also need support in technology, marketing, etc. So business people themselves, be they in textiles, rice, fisheries, meat, poultry or anything else should help in developing policies that can help us move forward. We also have to diversify our exports in multiple sectors,” he said.
I dream for Pakistani business houses to span across the globe so much so that in a 24-hour period the sun never sets. The tenacity of our business people is such that we may see this in my lifetime
He further said that one of the best areas for businessmen is in Karachi.
Talking about gas shortage, he said that it was a challenge. Since demand of gas was very high in winter the supply issue was increasing, he added.
He further said that the world was in an economic recession. “India, our neighbouring country, too, is in recession but I want to congratulate you that the exports of our country are going upwards and in the right direction,” he said.
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“A day would come when at least 20 or more Pakistani businesses will be listed in Fortune 500. I dream for Pakistani business houses to span across the globe so much so that in a 24-hour period the sun never sets. The tenacity of our business people is such that we may see this in my lifetime,” he said.
Pakistan’s economy is shifting towards import-substitution industrialization via supporting the domestic businesses and export-led sectoral development. Economic stabilisation measures of the current government are yielding results which will be visible in the coming years if the appropriate policy measures are taken to transition to growth.