ISLAMABAD: Adviser to Prime Minister on Finance and Revenues Dr Abdul Hafeez Shaikh said on Wednesday that the primary objective of the government is to avert ‘recession’ and striking a balance to generate revenue but without suffocating economic activities in the post COVID-19 situation. He also hinted at moving ahead with hedging of oil prices in the international market to certain portion of 15 percent of the total import bill. “The contraction of economy is expected and the GDP growth may fall negative 1.5 percent for the outgoing fiscal year in the post COVID-19 situation against earlier projection of positive 3 percent,” Adviser to PM on Finance Dr Abdul Hafeez Shaikh said while addressing a seminar on Pakistan Economy-Post COVID-19 arranged by ICAP on Wednesday. ICAP leader Ashfaque Tola moderated the session.
"It's a challenge for the government to devise policies to kick-start the economic activities and bring down the budget deficit within the desired limits that might escalate to over 9 percent of GDP for the outgoing fiscal year,” he said and added that the rising debt was problematic but the recent decrease in interest rate and getting concessionary loans would help us to reduce the debt burden.
When asked about the FBR’s tax collection target of Rs5.1 trillion envisaged by the IMF for the next fiscal budget, Dr Shaikh said that the discussions with the IMF were an ongoing process and the Fund was very supportive for stimulus package announced by the government in the post COVID-19 situation. The construction package, he said, was aimed at boosting the economic activities as the fixed tax was introduced, capital gains tax on one housing unit was abolished and the source of income would not be asked. “We will have to generate taxes but it will be done without suffocating the economy,” the finance adviser to PM added.
Shaikh said that the government would have to reduce excessive regulations because it increased the cost of doing business. He said that oil on deferred payment from friendly countries contributed to small portion of our total import bill of energy requirements such as POL products and LNG. The hedging of POL prices would be taken into account with cost attached to insurance. The option will be exercised to move ahead with hedging of 15 percent of total import bill of POL products, he added.
On the question of tax reforms, he said that the country would have to stay on the course on tax reform path as it might not be pursued aggressively in the wake of coronavirus but the country would have to stick to this course of action. When asked about the partial lockdown or complete lockdown, he replied that complete lockdown was not possible keeping in view health, food and other emergency requirements. He said that Pakistan was a poor country and it could not afford shortages of food and other essential items. So the prime minister's direction for smart lockdown has a lot of wisdom, he added.
To another question regarding reversal of SRO 1125 on the demand of textile sector for restoring zero rating regime for five export-oriented sectors, the adviser replied that no country could bring prosperity into the lives of people without earning in dollars, so the government provided subsidy to exporters on electricity, gas and loans. The government, he said, also placed automated refunds system for exporters. The government also helped the exporters through market access as the free trade agreement with China was revised, then GSP Plus from EU got extended and whenever our leadership met with top US officials, it always sought market access for exporters. “The toughest decision was taken for bringing domestic sale of textile sector under the tax net,” he said and added that the government did not want a pick and choose policy on taxation issues.
On the opportunity side of post COVID-19 scenario, he said that there were many missed-out opportunities in the past as the reduced oil prices and incentives for industries, especially for construction sector despite having under the IMF program, could become positive for Pakistan. He said that when this government came into power, the current account deficit was over $20 billion and the rupee was overvalued. He said that Pakistan struck a good programme with the IMF that helped stabilize the economy in the pre Covid-19 situation.
But the coronavirus affected the economy badly as it was going to hit exports and remittances negatively. The tax revenues that were expected to touch Rs4.7 or Rs4.8 trillion for the current fiscal year now it might fall to Rs3.9 trillion. The GDP growth rate would contract and might go negative 1.5 percent for the outgoing fiscal against the earlier projection of positive 3 percent.
The government unveiled the stimulus package of Rs1,200 billion but now the real worry was to avoid recession on economic front in the future.
