Debt reprofile talks with China encouraging: Aurangzeb

WASHINGTON: Pakistan’s government is committed to change the country’s economic DNA by moving it to an investment lead rather than aid lead, Finance Minister Mohammad Aurangzeb said here on Tuesday.

Speaking at an event titled “Pakistan: From Stabilization to Sustainable Growth via Structural Reforms” which was hosted by Jihad Azour, the IMF’s Director of the Middle East and Central Asia department, the Finance Minister maintained that the country has no choice but to execute the multifaceted structural reforms, listing broadening the tax net, energy reforms and privatization of the SEOs as the most integral.

“We cannot get onto a sustainable growth path unless we fix our energy equation; bring the untaxed and undertaxed into the net, the minister said. “We need to understand that the reason why we had so many boom and bust cycles is .. and the reason for that is that the DNA of our economy so far has been import lead and import dependent, so we have to change the DNA of the economy towards export lead.”

He insisted that Pakistan has to make corrections in its economy for its own sake, as “dole-outs” were not available anymore.

“From the country’s perspective, sustainability in terms of how we want to take the country forward - not aid lead but investment lead,” he said.

He reiterated that the government has no business in being in business. “Government has to provide the policy framework and policy continuity. It’s the private sector which has to lead the country.” The minister said that the government was moving to pass a legislation to “get rid of the word ‘nonfiler’,” and ensure enforcement.

On the expenditure side, the government is moving the loss-making SOEs into the privatization pipeline, he said, “we are reducing the size of the federal government ... so what we have been able to do is to say 150,000 vacancies are not going to be filled in the federal government going forward and it has a real impact of the budget.” He further said that the unfunded liability on the pension side is a huge issue for Pakistan.

Earlier, in an interview to Bloomberg, the finance minister maintained that China’s response to Pakistan’s request to lengthen maturities for debt involved in the Belt and Road Initiative had been encouraging though the negotiations are in their early days.

Bloomberg reported that Pakistan was seeing a period of stability after securing a new $7 billion loan program from the International Monetary Fund. It has also seen partners including China roll over debt of $16 billion from a total of about $26 billion due in the current fiscal year that started in July.

The country needs to maintain its financial and monetary discipline, as it did during the caretaker government, to increase the tax-to-GDP ratio to 13.5% from below 10%, he told Bloomberg which the minister repeated during his talk with the IMF director. To reach its goal, the government aims to target retail, real estate, and agriculture sectors instead of relying on the salaried class as in the past.

Minister for Finance and Revenue Muhammad Aurangzeb also urged all the development partners to work closely together in resolving the pressing issues faced by developing countries, especially Pakistan.

Addressing the G-24 Ministers and Governors meeting on Tuesday, the minister identified the issues as climate change, population growth and child stunting. In his statement on becoming the Second Vice Chair of the G-24 Bureau during the fiscal year 2024-25, the finance minister emphasized the need to address key issues such as high debt burdens on developing countries, the need for climate action and greater representation of developing countries in the Bretton Woods institutions, according to a media note by the Ministry of Finance.

The minister also met with Makhtar Diop, Managing Director of the International Finance Corporation (IFC). The two sides discussed expedited evaluation of bids for Islamabad airport, Diversified Payment Rights (DPR), raising local currency through offshore bond issuance, privatization of DISCOs and HBFC. Aurangzeb extended the invitation to Diop to visit Pakistan.

Later in the afternoon, he also participated in the Vulnerable Twenty (V20) Ministerial Dialogue on the theme “Realizing Climate Prosperity through Financial Reform, Debt Solutions, and Affordable Capital”. The V20 Group of Ministers of Finance of the Climate Vulnerable Forum is a dedicated cooperation initiative of economies systematically vulnerable to climate change. The group works through dialogue and action to tackle global climate change. It was established in October 2015 and comprises 68 countries from Africa, Asia, the Caribbean, Latin America and the Middle East.

In his intervention, the finance minister told the audience that Pakistan was developing its Climate Prosperity Plan. He emphasized on the need to reform global finance to “make debt work for the climate.” He called upon the Multilateral Development Banks (MDBs) to expand grant opportunities and concessional financing windows. The minister endorsed the official recognition of the V20 by the International Monetary Fund (IMF) as an official intergovernmental group.