Finance Minister Miftah Ismail Friday said Pakistan was heading in the right direction but the country might face bad days ahead. Addressing an event at the Pakistan Stock Exchange (PSX) in the port city of Karachi, Miftah said: “We are on the right track, but obviously we might see bad days. However, we are on the right track and if we control our imports for three months, we can boost our exports through various means.” The incumbent government faced an uphill task of ending oil and power subsidies when it came to power – and after much deliberation, it did put an end to them as the country needed the support of the International Monetary Fund (IMF). Pakistan reached a staff-level agreement with the IMF last month followed by months of deeply unpopular belt-tightening by the government, which took power in April and has effectively eliminated fuel and power subsidies and introduced new measures to broaden the tax base.
The new government has slashed a raft of subsidies to meet the demands of global financial institutions but risks the wrath of an electorate already struggling under the weight of double-digit inflation. Following the staff-level agreement and the tough decisions, IMF’s Resident Representative for Pakistan Esther Perez Ruiz said earlier this week that the country has completed the last precondition – increasing the PDL (petroleum development levy) – for the combined seventh and eighth reviews.
An original $6 billion bailout package was signed by former prime minister Imran Khan in 2019, but repeatedly stalled when his government reneged on subsidy agreements and failed to significantly improve tax collection.
Miftah said that the budget deficit during PML-N’s previous government was $1,600 billion, and the PTI, in the last four years, raised it $3,500 billion.
“When you raise the budget deficit and also increase the loans by 80%, it has an adverse impact on the economy,” he said, lamenting that the present government was suffering due to PTI’s economic policies.
He noted that the government, after being formed, had to save the country from default, therefore, it took some immediate and short-term measures.
“Maybe it was unwise in the long-term,” he noted.
The finance minister said through the measures that the government had taken, imports will decrease, resulting in the appreciation of the rupee.
Miftah added that the country needed to boost its reserves for long-term stability and the current condition where the government had to “literally beg” countries for money “was no fun”.
The rupee has been registering gains over the last few days – as the pressure on it has decreased amid a positive statement of Pakistan completing all prerequisites for the IMF loan programme’s revival.
The minister also said that “nobody knew how much the dollar would drop” as he rejected rumours of “dollar betting” in banks. “The banks have played a positive role in controlling the dollar,” he said. “The government is grateful to the banks for their cooperation,” he said. Miftah further added that the fluctuation in dollar prices was caused by “supply and demand in the market”.
“Even a small-scale shopkeeper understands that if the sales are Rs30,000 a day and the stock you are buying is worth Rs80,000, then you need to reduce the stocks you are buying. That is what we did too” he explained, claiming that “all problems ended” once the government reduced the country’s imports from $7 billion to $4.9 billion.
The minister also confessed the government had made a “mistake” in its imposition of taxes on shopkeepers. “We had estimated Rs3,000 to be levied per shop as income and sales tax” however, he said that “small-scale shopkeepers were also included in these lists” by error. Nonetheless, he defended the tax imposed on traders, describing it as “adequate and good”.
