Monday March 20, 2023

PTI finance minister’s riposte: Dollar peg policy failure proves Dar unfit for job, says Tarin

Former finance minister Shaukat Tarin responded to Ishaq Dar’s press conference and stated that the epic failure of his ‘dollar peg’ policy proved again that he was unfit for the job, as he did not have even basic understanding of markets and economic policy

January 29, 2023
Former finance minister Shaukat Tarin addressing a press conference on January 27, 2023. Screengrab of a Twitter video.
Former finance minister Shaukat Tarin addressing a press conference on January 27, 2023. Screengrab of a Twitter video.

ISLAMABAD: Former finance minister Shaukat Tarin on Saturday responded to Ishaq Dar’s press conference and stated that the epic failure of his ‘dollar peg’ policy proved again that he was unfit for the job, as he did not have even basic understanding of markets and economic policy.

In a detailed response to Dar’s statement, the PTI government’s finance minister said they hoped that Ishaq Dar would do an honourable thing and hand over his resignation for misleading the nation, causing immeasurable sufferings to citizens through record-high inflation, and taking the economy to the brink of default.

On the day the exchange rate posted another record low of 262 to the US dollar, there was no clarification from Dar, who used to boast that he would bring the dollar rate to below 200, Tarin said.

The immeasurable loss to the economy as a result of the dollar peg policy could be clearly seen in the economic data, with SBP reserves falling to $3.7bn (20th Jan), which is hardly three weeks of import cover. Dar has brought the economy to the brink of default, with exports declining by 7pc, remittances declining by 11pc, and FDI down by 59pc. It is not just the PTI that criticised the epic failure of the PDM government policies but even the country’s bilateral and multilateral development partners refused to provide financial assistance due to failed policies of the government. Even their own party members, including former finance minister Miftah Ismail, criticised Ishaq Dar and admitted that Pakistan suffered “a big loss” due to his polices.

Shaukat Tarin said “We had warned beforehand that the PDM government and their munshi Ishaq Dar are unfit for the job. The fixation of Ishaq Dar on a dollar peg is not only a reflection of a poor understanding of economic policymaking but also a reflection of a fragile ego trying hard to justify occupying an office that is too big for his shoes.” He said during the 2013-2018 period, the economy paid a heavy price because of the dollar peg with exports plummeting from $24.8bn in 2013 to $22bn in 2017. During the same time period, Bangladesh’s exports increased from $29bn in 2013 to $38bn in 2017. An estimated loss of $10bn was inflicted on the economy as a result of the decline in exports due to the Dar peg.

In 2022, the same experiment by Ishaq Dar resulted in the exports declining by 7pc. This clearly shows that Ishaq Dar has not learnt any lessons from the past mistakes and is unfit for this job. To hide his colossal failures, Ishaq Dar likes to throw around random numbers and desperately spin fairy tales. In Friday’s press conference, he spun a fairy tale of Pakistan becoming the 24th biggest economy in the world under his capable leadership in 2018. Subsequently, he claimed that the economy had shrunk to become the 47th largest economy in the world by 2022.

This is not the first time Ishaq Dar has thrown these bizarre statistics in the public. Initially, “we believed he was making up random numbers, as no credible public or private institution uses or quotes such rankings,” said Tarin.

“On doing some research, we found out that Wikipedia publishes a global GDP ranking. According to the 2022 rankings, Pakistan’s GDP on a PPP basis was ranked 23rd in the world. So not only did finance minister deliberately lie in his press conference, the fact that he uses these mumbo jumbo statistics reflects utter desperation to hide the failures of his policies in the last term and today.

“We must ask the question: is Mr Ishaq Dar fit to hold the office of the Finance Minister?”

Under the Imran Khan government, the economy was expanding at 6pc for the second consecutive year with record exports, record large-scale manufacturing output and record output of agriculture crops.

The agricultural sector posted growth of 4.4pc in FY22, which is the highest posted since FY05. This was driven by 6.6pc growth in major crops, the highest since FY05.

The large-scale industries posted a record growth of 11.7pc in FY22, the second consecutive year of 11pc + growth.

The economy was booming with record exports of $32bn in FY22, Tarin claimed. Credit to the private sector grew by 22pc. However, under the PDM government, the economy has nosedived and the SBP now estimates that GDP growth will slow down to just 2pc in the current year, compared to 6pc under the PTI government.

Due to the draconian tax measures and the restrictions on imports, the manufacturing sector output has nosedived and in the first five months posted a -3.6pc contraction. 20 (out of 25) industries posted sharp double-digit negative output. Dr Hafiz Pasha forecasts negative -1pc GDP growth in FY23.

Not only the economy will fail to create job opportunities for 2mln youth entering the workforce every year, but according to various estimates nearly 10 million workers are at risk of being laid off.

According to the PBS data, the PTI government created 1.84mn jobs every year (2019-2021). In comparison, the PMLN created only 1.1mn jobs and PPP 1.4mn jobs every year. The numbers have been taken from the 2022 Economic Survey of Pakistan [Table 12.1, first page of chapter 12].

The PDM has unleashed a tsunami of inflation that has never before been recorded in our 75-year history. Already inflation has averaged 25pc in the Jul-Dec FY23 period, compared to inflation of 10.8pc under the PTI government (Jul to Mar FY22). Now with the depreciation of rupee, a second wave of inflation tsunami has been unleashed.

Experts including Dr Hafiz Pasha have warned that inflation will rise to 35pc in the days ahead due to measures of the PDM government.

Under the PDM government, average electricity prices for consumers have been increased by 100pc. They promised to reduce prices before the vote of no-confidence against Imran Khan. The former premier kept petrol and diesel prices at Rs150/ litre, by reducing GST and PL to nil.

The PDM has raised petrol prices to Rs214/ litre. That includes a record Rs50/ litre tax (PL). With recent devaluation, new prices will rise to Rs260, Tarin predicted. Diesel prices are now expected to rise to Rs290 due to recent devaluation and PL of Rs50/litre.

According to the latest report by PBS, prices of flour have increased to Rs91 per kg in Jan 2023, an increase of 56pc from Rs58 per kg in March 2022. According to the media reports, the actual prices faced by consumers are even higher at Rs140-160 per kg, indicating an increase of nearly 175pc in the prices of flour since the no-confidence vote.

Chicken prices have increased to Rs 650kg in Jan 2023, compared to Rs288 in March 2022, an increase of 125pc. Onion prices have increased by a whopping 500pc to Rs240/kg in Jan 2023, compared to only Rs 40/kg in March 2022.

A whopping Rs8 trillion increase in public debt was witnessed from March to November 2022 under the PDM regime, Tarin added. Even this number is underreported due to the distortionary exchange rate, otherwise, the number would be even higher at Rs11 trillion.

At the current rate, the PDM regime would add nearly Rs16.4 trillion to the public debt in their first 12 months. Whereas the PTI government added only Rs19 trillion in three-and-a-half years. In real terms, the public debt stood at 66.3pc of GDP in March 2022, compared to 63.7pc in June 2018.

Fiscal deficit has increased sharply to Rs1,266bn during Jul to Oct FY23, an increase of 116pc from Rs587bn in the same period last year. This comes despite a record increase in electricity prices and record taxes imposed in the FY23 budget by the PDM government.

These deficits are likely to increase further in the days ahead, with the FBR collection falling short by a record Rs220bn till December.

The problem is not with the FBR, in fact it is a herculean task for the FBR to collect taxes in the current economic environment where the PDM regime has effectively shut down the entire economy. From textile mills to automobile manufacturers, all are reporting shutdown in factories and massive lay-off of labour.

Tarin said: “We targeted to increase tax collection to Rs8 trillion in the current year, whereas under the PDM regime, it is likely that tax collection will remain below Rs7tr despite record new taxes imposed in the FY2023 budget.”

Key reforms including retail sector POS, track & trace system for big industries and single window customs facility were launched to reduce tax leakages. 43 million new taxpayers were identified and were to be brought into the tax net under the PTI government.

The PDM regime has not only rolled back some of these reforms but further burdened the existing taxpayers through exorbitant taxation measures. Super tax and taxes on salaried individuals is criminal, he added. Despite the fact that capacity payments to projects set up the PMLN regime (2013-2018) went up to Rs1.15 trillion in FY2022, from Rs450bn in FY18 – under the PTI government, the build-up in circular debt was contained to Rs100bn only in FY2022.

However, under the PDM ‘imported’ regime, the circular debt has increased by Rs500bn during Jul-Oct 2022, an increase of over Rs123bn a month. This is despite nearly a 100pc increase in the average unit price of electricity for end consumers, he concluded.