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July 26, 2017



Finance Division’s rejoinder

ISLAMABAD: Finance Division has issued a response to a write up titled “Sticky Opinions” carried by The News on 24th July. The article has stated that all official projections and estimates set for 2017-18 are unattainable mainly due to rising political instability, rising current account and trade deficit, falling exports, reserves and remittances.


The writer has claimed that the IMF is now getting tough and reportedly putting new conditions to offer any bailout package. The writer further claimed that to understate the budget deficit, an adjustment of Rs 64 billion has been shown in the non-tax revenue in the last financial year and the government has reportedly shown Rs64 billion as sale proceeds of the government-owned LNG-based power plants. The writer has also raised the issue on manipulation of statistics, especially in the areas of economic growth, revenues, expenditures and budget deficit.

The Division replied: At the onset, it is important to mention that the author’s assertion that the IMF is now getting tough and reportedly putting new conditions to offer any bailout package is merely baseless. With regard to the bailout package, there seems to be no immediate need for any bailout considering the debt dynamics have shown sustainability. The writer is advised to carefully go through the report on recently concluded Article IV Consultations in which the Fund has endorsed the positive and favorable outlook for economic growth along with risk assessment.

The favorable outlook is backed by acceleration in investments under CPEC, improved availability of energy and growth supporting structural reforms will strengthen GDP growth to 6 percent in the coming years. Inflationary pressures have been contained. However, the Fund has also pointed certain risks, particularly, widening of budget deficit and current account deficit together with decline in foreign exchange reserves. The Government is aware of the challenges and is firmly committed to maintaining macroeconomic stability while achieving pro-poor inclusive higher economic growth of 7 percent in medium term.

With regard to data manipulation, a number of rebuttals have already been issued whenever the criticism raised on the data manipulation. However, the writer should be mindful that the present Government believes in complete transparency and has all along been sharing the data in the areas of economic growth, revenues, expenditures and budget deficit with its development partners and other financial institutions. The data of fiscal operations is regularly posted on the website of Finance Division.

On the claim of understating the budget deficit by including the amount of Rs64 billion as non-tax revenue, it is to mention that the amount received from Saudi Arabia was never taken as Government revenue receipt but was a foreign grant and placed under external financing. This was booked as expense of Federal Government as grant-in-aid to Pakistan Development Fund Limited (PDFL) during the same year i.e. FY 2013-14. This information was also placed on the website of Finance Division and still continues to be there.

The second misleading caption of the news is that the PML-N government has shown an amount of Rs 64 billion as sale proceeds of the government-owned LNG-based power plants being set up in Punjab in a bid to cover-up the issues.

It is intimated that PDFL has been incorporated as a Non-Banking Financial Institution with the objective of financing / investment in infrastructure projects. The PDFL identified two green-field power projects; Haveli Bahadur Shah and Balloki for investments out of the funds available with it. Therefore, to move forward and after conducting extensive negotiations with stakeholders, including Ministry of Water & Power, PDFL injected money in these two projects and acquired shares worth Rs.64.0 billion which was paid to the Federal Government as non tax receipts.

With regard to the external sector, it is to mention here that the widening of current account deficit is mainly due to increase in imports, decrease in exports and workers’ remittances. This is mainly owing to machinery imports both for CPEC and non-CPEC energy and infrastructure projects. The increase in import of machinery is generally considered a healthy sign as it will augment productive capacity of the economy, eliminate electricity shortage and address infrastructure bottlenecks for higher growth in future. Decrease in exports is due to contraction of global trade in recent years including our neighbors.

However, in view of the last four months performance, the decline in exports appears to have bottomed out. The current account deficit has been managed by FX reserves and financial account surplus.

Workers’ remittances have also shown declining trend globally due to economic conditions in the Middle East and other regions of the world. Worker's remittances in India, Bangladesh, and other countries have also shown similar trends.

With regard to falling reserves, it is to mention that despite the decline in SBP foreign exchange reserves to US$ 16.1 billion at the end of FY2017 as compared to US$ 18.1 billion in FY2016, foreign exchange reserves are at a comfortable level sufficient to cover above 3 months of imports.

Going forward, Government of Pakistan is taking necessary measures to ensure sustainability of the external account. A historic package of PKR 180 billion for exporters is currently under implementation by the present Government.

The results have started coming in as merchandize exports in June 2017 over June 2016 increased by 16.2 percent. The government is also taking necessary measures for attracting workers’ remittances as negative trend is fading out.

On positive note, increased economic activity, considerable increase in bank deposits, and low interest rates translated into private sector credit flows in FY17 reaching a decade high of Rs748 billion.  The current stance of credit to private sector is likely to maintain its pace in view of growing investment and improving business activities on low interest rate. These trends are set to continue in FY18.

It would be important to note that recently IMF maintained the global growth forecast. The growth in Euro zone is now expected to be slightly stronger in 2018 along with expected higher growth in Japan and China etc.

The global forecasts project a positive outlook with both growth and international trade picking up in FY18. Based on this assessment coupled with positive domestic policy measures, Pakistan’s external sector is expected to post gains.

The overall balance of payments is expected to stay at a manageable level in FY18- an assessment relying on steady anticipated financial account inflows and improvement in world growth.