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July 15, 2018

New govt may decide to proceed with IMF package


July 15, 2018

KARACHI: Finance Minister Dr Shamshad Akhtar has said groundwork was being laid for the International Monetary Fund (IMF) programme, and the incoming new government can proceed with its processing to restore market confidence with a quick stabilisation package.

The minister, during her visit to the Pakistan Stock Exchange (PSX) on Saturday, said that an economic crisis arises owing to domestic issues, and not due to external factors. The current state of the economy required speedy measures to stem the declining trends, foremost being the need to restore market confidence with a quick stabilisation package.

“We can go to the fund program any time, but we will not enter any IMF programme. The new government can, but all depended on the new regime holding the wheel of the Finance Ministry,” she added.

The minister in a slide presentation explained that external vulnerabilities were at an all time high as the current account deficit would likely accelerate to $18 billion in the outgoing year from nine billion dollars attained in 2017-18, whereas the target has been set at $14 billion for the current fiscal year.

Explaining targets, the minister said current account deficit would likely be 5.8 percent of the gross domestic product as against 2.6 percent of the preceding year, while for 2018-19 it has been set at 4.2 percent.

Remittance target has been set at $21 billion for 2018-19, while in the preceding year it amounted to $19.6 billion.

“We need to recognise that we will be operating in a difficult international economic environment owing to rising real interest rates and inflationary expectation,” the minister said during a quick view on the current state of the economy.

“We asked the ministry of finance, SECP (Securities and Exchange Commission of Pakistan), and PSX to work on a capital market development plan, which will be tabled with the Asian Development Bank,” Dr Akhtar said.

The government should look into resuming discussions with multilateral donor agencies like the World Bank and Asian Development Bank on structural reforms for the Millennium Development Goals to supplement resources.

The minister also said the capital market required some fresh goals, as it would infuse much needed liquidity into the companies going for new issues and raising capital for their expansion and modernisation plans.

Talking about curtailing imports, the minister said, “We are witnessing exorbitant increase in luxury items each year, the imported cars plying on roads such as Audi and Mercedes even mobile phone imports have surged.” She added that several people used two mobile phones and have a number of cars, “this should be curtailed”. Even the duty-free imports during the last fiscal year recorded 35 percent growth.

The only solution to bridge the gap to accelerate growth in exports which has been lacking since the last several years was to eliminate the system of refund, the policy should be zero-rated - “no exports, no refunds”, she added.

Regarding tax collection she said the timing of tax amnesty scheme was designed to cover up the revenue shortfall. If the amount of Rs90 billion would not have arrived through amnesty scheme, the actual shortfall would be Rs274 billion instead of the numbers of 2017-18 showing a shortfall of Rs184 billion.

The minister also spoke about the rising twin deficits, and said that in the past six years foreign debt has grown by $21.4 billion and reached $69.5 billion... “external debt has risen to meet the financing requirements of current account deficit as well as development projects as well as repayment of IMF and commercial liabilities”.

Regarding rupee, Dr Akhtar said the general view was that the caretaker government did some adjustments, but the perception was incorrect, “rupee (is) adjusting as per market forces and also owing to external payment pressures”.

The currencies across the globe have received beating and Pakistan alone was not the victim, she added.

Richard Morin, managing director, PSX, said the recent decline in the stock market was owing to slide witnessed in the global markets. “All the regional markets declined on an average 16 percent, while from the peak PSX was down by 23 percent.”

He said that investors should adopt a long term perspective in the domestic stock market. “I have told my fund manager in Canada to invest in Pakistan emerging market fund on the horizon of six to 18 months period,” Morin said.

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