Govt plans to introduce flexible exchange rate

ISLAMABAD: Federal Minister for Finance Asad Umar on Monday said that people should thank God that the government has not increased the petrol price by Rs12 per litre.

He conceded that the inflationary pressures existed but claimed that inflation is less than what it was in 2008 and 2013. He said there was a need to ascertain its reasons as adjustments for removing imbalances from the economy always resulted in price hike.

He also hinted at placing flexible exchange rate from existing managed exchange rate under the IMF programme and stated the real effective exchange rate (REER) model run by the SBP showed that the equilibrium was already struck in rupee against dollar.

He also offered the opposition parties and specifically PML-N leader Ayaz Sadiq to come in front of live TV cameras and debate on POL price hike. He claimed that the government reduced taxes for not passing on the full impact of Rs12 per litre as recommended by Ogra. He said that the coming budget was expected to be unveiled by May 24 subject to the discussion of Speaker National Assembly.

“We are nearing landing zone for evolving a consensus with the IMF as I am going to attend the annual spring meeting of IMF/World Bank scheduled to be held at Washington, DC, from April 19 to 14, 2019. During this visit to US, the exact schedule for the upcoming mission of the IMF will be finalised,” Umar said while talking to reporters after launching the regulation for Electronic Money Institutions (EMIs) here at the SBP building.

Dwelling upon the FATF issues, the minister said they got back reply from FATF president regarding objections about co-chair of India and without removing New Delhi the FATF has assured them to remove their concerns. However, he said that Pakistan was not satisfied with the response of FATF but at least it was made part of record for future decision of FATF that one of its referees was not impartial.

When asked about differences within the Cabinet ministers, he replied that it was not Montessori class where students were supposed to listen to lectures but it was cabinet meeting where everyone presented their viewpoint fully but when decision was made every one owned it. “I hope that the cabinet will continue extending its backing under the IMF programme as well,” he added.

The minister recalled that in December 2017 when Miftah Ismail was running the economy under the former premier Shahid Khaqan Abbasi, they took stance that the rupee was artificially kept overvalued and allowed adjustment from Rs105 to Rs127 during their tenure. When PTI came into power then the rupee depreciated in the range of Rs13 to 14 against dollar but it was almost half than the PML-N regime.

To another query about the size of IMF programme, he said that Pakistan could obtain three-year programme and in case of getting $6 billion, it would take $2 billion on per annum basis. In case of $9 billion the amount would be standing at $3 billion on annual basis. But this IMF amount could not match with the financing gap requirements that was estimated at $27 billion for the current fiscal year.

The IMF package, he said, paved the way for securing loans from other multilateral creditors as well as through launch of international bonds. He said that the prescription path was clear as the stabilisation could be achieved then the growth path could be kick-started from third year under the IMF program.

When the minister was asked about remaining conditions for evolving consensus with the IMF, he replied that the differences were narrowed down as earlier there were difference with the Fund staff on pace and sequencing of required steps. He mentioned that the current account deficit (CAD) was curtailed at first and now the focus could be diverted into other sequencing requirements on remaining fronts.

To another query about the tax shortfall faced by the FBR, he said that the import was compressed to slash down the current account deficit as 40 percent revenues generated through imports. Secondly, he mentioned that the court decision also caused revenue loss. Thirdly, he argued that the average GST on POL products during first eight months of PTI led regime stood at 10.7 percent against 17 percent on average in the same period of the last financial year.

He further said that the government raised POL prices by Rs6 per litre against Ogra recommendation of Rs12 per litre as the government slashed down its tax rate for not fully passing on full impact of POL price hike on the people.

Whenever balance of payment crisis emerged it caused price hike after making adjustments to remove imbalances on the economic front, he said and added that the CPI based inflation went up in 2007-8 and 2013 under PPP and PML-N regimes.

He quoted the IMF findings about severity of balance of payment (BoP) crisis and stated that the crisis of 2007 and 2013 could not be compared with the existing one under the PTI led regime.

He said that the financing from friendly countries received including $3 billion from Saudi Arabia, $2.1 billion from China and $2 billion from UAE out of total commitment of $3 billion.

When asked about China’s assistance, he said that Beijing provided 15 billion RMB equivalent to $2.1 billion and its market access of $1 billion for exports was finalised and would be implemented from April 2019. He said that ML-1 would be implemented ahead.