ISLAMABAD: Pakistani economic advisers discussed banning imports of luxury cars, smartphones and cheese in a wide-ranging strategy session on how to avoid seeking a bailout from the International Monetary Fund (IMF), a senior government adviser said.While no decisions were made, the floating of radical measures to tackle Pakistan's ballooning current account deficit by the newly-formed Economic Advisory Council (EAC) underscores the new government's determination to avoid another IMF bailout.
The EAC held its first session last week, chaired by Finance Minister Asad Umar, who took office last month. A lull in Pakistani exports and a relative spike in imports has led to a shortage of dollars in the economy, putting pressure on the local currency and dwindling foreign currency reserves. That has prompted most financial analysts to predict Pakistan will turn to the IMF for its 15th bailout since the early 1980s.
But Prime Minister Imran Khan has criticised a culture of dependency and his party officials have expressed concerns that the reforms and austerity the IMF might demand would strangle promised government spending. Ashfaque Hasan Khan, a university professor who is one of more than a dozen EAC members, told Reuters that during Thursday's meeting, the focus was on outside-the-box ideas that would help curb imports.
"I didn't find any member (who) suggested that Pakistan should go to the IMF because there is no other alternative," he said.
"We need to take some actions. ‘Do nothing’ scenario is unacceptable.”
He recently told the Senate that while Pakistan needs to meet a $9 billion financing requirement, the IMF should only be a fallback option.
Ashfaque said the more radical steps discussed were a year-long ban on imports for cheese, cars, cell phones and fruit that could "save some $4-5 billion".
A push on exports could generate up to $2 billion in extra inflows, he added. "You see how much cheese is coming in this country from abroad," Ashfaque said.
“Does this country, which doesn't have dollars, deserve this, that it is importing cheese?"
Last year, the previous government hiked tariffs by up to 50 percent on 240 imported items, including cheese and high-horsepower cars, and imposed regulatory duties on dozens of new imports. But no outright import bans were issued.
Asad Umar recently said Pakistan would not rule out asking "friendly nations" -- usually code for historic allies China and Saudi Arabia -- for assistance to avoid going to the IMF, as well as raising money on international debt markets. The current account deficit widened by 43 percent to $18 billion in the year ended June 30, hit by a jump in oil prices. Pakistan imports about 80 percent of its oil needs. To ease current account pressures, Pakistan's central bank has devalued the rupee four times since December, while interest rates have been hiked three times this year.
Meanwhile, the Pakistan Tehreek-e-Insaf (PTI) government has decided to present a mini-budget in which major macroeconomic and budgetary targets for the current fiscal year would be revised to curtail the record current account and budget deficits recorded in the previous fiscal year, The News learnt.
The radical revisions have been necessitated by the shortfall in targeted revenue collection for fiscal year 2017-18, a top official at the Finance Ministry said on Sunday, on condition of anonymity.
Tax collection in the year which ended on June 30 totalled Rs3,842 billion, against the Federal Board of Revenue (FBR) estimate of Rs3,935 billion. Against that backdrop, the FBR target of Rs4,435 billion for fiscal year 2018-19 seems implausible, requiring a significant downward revision.
To fill the breach, the government is considering a partial withdrawal of the tax incentives for high earners introduced by the previous Pakistan Muslim League-Nawaz (PML-N) administration. It is also mulling the re-imposition of wealth tax on immovable assets owned by well-off taxpayers.
Also on the cards are a one percent increase in customs duties and the imposition of additional regulatory duties on over 6,000 tariff lines, so as to discourage the consumption of imports.
Spiralling imports drove the current account deficit to a record $18 billion in 2017-18, draining Pakistan's foreign exchange reserves to dangerously low levels. The budget for 2018-19 aims to maintain this level, but trade financing costs could push it up to $19.5 billion.
The budget deficit target for 2017-18 was also missed by a wide margin, hitting 6.6 percent of GDP against the revised target of 5.5 percent. To curtail it, the government is thinking of slashing the Public Sector Development Programme (PSDP) to Rs600-Rs700 billion from Rs1,030 billion, by removing unapproved and low-priority projects from the budget.
But the government has little room for manoeuvre. The majority of the budget is tied up by debt servicing and defence spending, neither of which is up for negotiation.
The only alternative for the government would be to reduce the PSDP, which includes Rs100 billion for public private partnership projects and another Rs100 billion for discretionary expenditure by the new government. Neither have been mentioned in the "pink book" published by the Finance Ministry.
Under the revision of macroeconomic and budgetary targets, the Gross Domestic Product (GDP) growth target for 2018-19 could be revised to 5.5 percent from the ambitious aim of 6.2 percent previously set.
Likewise, the Consumer Price Index-based inflation target could be revised to more than 7 percent from the previously envisaged 6 percent.
In the same vein, the targeted 2018-19 budgetary deficit target of 4.9 percent is unrealistic, requiring the government to upwardly revise it to 5.3-5.5 percent of GDP.
Earlier, Prime Minister Imran Khan chaired a media strategy meeting of the PTI and decided to highlight the alleged mess in economic as well as energy sector by the PML-N government.
Several ministers and Leader of the House in the Senate Syed Shibli Faraz also attended the meeting, which decided to project major decisions of the incumbent government. It was noted that there had been significant decrease in government expenditure, while the prime minister had done away with his discretionary powers too.
According to Information and Broadcasting Minister Fawad Chaudhry, the leadership agreed on bringing before masses the alleged lavish spending by the PML-N government. Special briefings will also be arranged on the alleged mess caused in the national economy and in the energy sector in particular.
The forum reiterated its resolve to take all decisions with consultations and after taking the parliament on board.