ISLAMABAD: Prime Minister’s Adviser on Finance Miftah Ismail says reduction in income tax rates will perhaps be the only relief for public in the coming budget. “We will try to decrease income tax rates, as perhaps the only incentive for public in the upcoming budget,” he told The News in an interview.
With the country’s economy passing through a difficult transition period, the focus of the economic team under premier Shahid Khaqan Abbasi is to take more corrective and less popular measures.
“In this budget, we won’t be introducing mega projects. We have talked to PPP and PTI on this through good offices of the National Assembly Speaker. And we will give the opposition a briefing on the budget before the budget session. We will leave the mega and big projects to the next government. We will only finance ongoing projects in the coming budget,” the adviser says.
The PML-N government does not want to make it an election year budget. They did it in the last budget by introducing the highest ever development programme, including motorways, highways, power plants, etc.
A man of few words and a lot of financial and economic data, Miftah Ismail is in the hot seat of the federal government, vacated as a last resort by former finance minister Ishaq Dar. Dar, now living in London, faces case in the accountability court as insiders claim he has run out of favours from the powerful quarters who once considered him a virtual second in command under former premier Nawaz Sharif. Now that he is out of the job and luck, people tend to criticise him and his economic policies – duly or otherwise.
Miftah has had a few months, but he is trying to leave some impact through right, corrective measures – with a mindset that if given another chance (luckily) in the next term, he could prove his mettle.
Asked about the current state of the country’s economy, Miftah said fundamental things is the GDP growth. “In this financial year, our GDP will grow at a rate of close to 6 percent, and it will be a 10 years’ record. Fundamentally, economy is growing, private sector is expanding, business is growing, people are having more income. This year we will add$20 billion to our economy.
“Second major thing is inflation because it is sort of a tax on the poor. We had projected that this year inflation will be under 6 percent, but we are better off in the first 8 months of this year by keeping the inflation rate around 3.9 percent. We had done a depreciation of rupee in December, but we are okay with inflation figures. We are going good on these two key measures.”
Asked about his reaction to economists like Dr Hafeez Pasha who think due to multiple factors, inflation could hit economy in the coming months, Miftah a bit annoyingly rejected the projection. “We are governing Pakistan for the last five years, and inflation rate has never crossed 5 percent figure. In PPP’s tenure, inflation rate was recorded at an average 11.8 percent. I think we are doing not just okay but we are doing well. Last year, it was at 4 percent, and previous one it was 2.8 percent. It remained at 5.04 percent during the four years of ours. It may increase, but won’t. And no reason to factor in that it should rise,” he said.
The adviser admitted that a major hitch in economy is related to government finances, and budget deficit is a bit high. “We will reduce it this year. This year our budget deficit could be around 5.2 to 5.3 percent, but I can’t give you the exact figure. We will have to see what surplus budget provinces come up with because in the federal budget surpluses and deficits of the provinces are also included,” he said.
“Where we are in a tight corner and a significant problem for me was of Current Account Deficit. It is because our imports have risen very sharply due to import of machines for CPEC power and infrastructure projects and Haveli Bahadur Shah, Bhiki, etc. Our petroleum import is too much. Because it is cheap in Pakistan as compared to the region, the demand of petroleum products has increased manifold. And since the petroleum prices are on the rise internationally, our imports have increased. So, in order to ward off current account deficit and import bill, we have to increase exports (for which we had also given a package of incentives).
“We have already depreciated our currency by 10 percent. This will increase exports and decrease imports. As our exports base is a bit small, so I don’t need to end current account deficit in a year. If we try to do it drastically, the economic growth will end. So we don’t want to do it in a short period. What we have done is to set the direction right. We think because of this devaluation two things will happen. Exports will grow faster than imports. Remittance will grow faster than imports. Currency inflow into the country will increase, currency outflow will decrease. And eventually we will in a year or two return to the historic GDP to trade deficit figure of two percent. Less than this, we are not interested as a growing economy needs investments and we need to take deficit to this level.” “With the latest devaluation, we have set fundamental direction of economy right, and things will improve,” Miftah believed.
Asked about the PML-N’s mega projects and the criticism by political quarters and parts of the establishment, he opined: “Our mega projects were necessary like Multan-Sukkur, Lahore Multan motorway. We have spent a major chunk of financial resources this year on such projects. It would be much less next years, so PSDP spending will naturally come down.”
On the PML-N government’s failure in turning around or rightsizing state-run corporations and businesses, he said, “We tried our best to privatise PIA, as PPP MQM and PTI opposed the move and we couldn’t do it. Now, the Privatisation Commission is working in this direction. We won’t be able to do something big in this regard for the remainder of our two months but will set the direction right. And in the caretaker government or the next government this year, this will be achieved.”
“PIA, Pakistan Steel Mills (PSM) and to some extent Pakistan Railways deficits are a heavy burden on country’s economy. We could construct new schools, hospitals, dams though the funds that are going down the drain to huge loss-making state enterprises.”
Asked why couldn’t PML-N straighten out these problematic areas during this five-year tenure, he said, “We didn’t have majority in the Senate, and couldn’t pass such bills for privatisation.” Asked whether the Chinese side is showing less interest in the construction of Special Economic Zones (SEZs) under CPEC, the adviser said, “When around two years ago, we sought list from the provinces about the number of SEZs they wanted under CPEC, the list swelled to 35-38. The Chinese wanted us to rationalise this demand, so it was reduced to 9 SEZs.
“Zones will be constructed one by one on priority basis. We have to develop industry in these zones. It won’t happen suddenly. In Pakistan, there are such industrial zones where colonisation is around 20 percent by factories, and rest 80 percent is still empty space. If for example there are 50-100 factories in each zone, the final figures could be around 900 factories in all the 9 zones.
“So we are taking it rationally. The Chinese have not taken a step backwards and this is mere propaganda. Such a huge investment takes time to materialise. We must also factor in the impediments in the way of industrialisation till now.
“It is for the first time in many years that we are providing unhindered electricity to the industry. Likewise, gas is being provided through LNG. It is for the first time, we have opened new gas connections, as there was a bar on new connections for the last 10 years as the country was going through massive electricity and gas loadshedding. Now with end to basic impediments, industry will come to Pakistan.”
Asked about the government measures to bring back legal/illegal wealth of Pakistanis stashed in foreign banks and real estate businesses, Miftah informed: “We are coming up with a package on this. Supreme Court has formulated a committee with governor State Bank, secretary finance, chairman FBR etc. So when this committee finalises its report, we will come up with a package to bring back the money.”