Fostering growth and reducing
poverty would remain the primary focus of the coming budget
June 03 - 09, 2002
The Finance Minister Mr. Shaukat Aziz, declared
that despite increase in the defence budget, public sector development
spending will be enhanced in the coming budget for the year 2002-3 to
be announced by the middle of next month. He also announced that a
fiscal responsibility law would be promulgated to check the growth of
debt and a mechanism put in place to ensure prudent fiscal discipline
from the next financial year.
Mr. Shaukat Aziz was addressing a pre-budget
seminar arranged by Daily News in Islamabad. The day long seminar,
divided in four sessions, was addressed by over a dozen well known
economists, researchers and scholars besides Finance and Commerce
Ministers. They included former Finance Ministers Sartaj Aziz of Nawaz
Sharif government, former Commerce Minister, Ahmad Mukhtar in Benazir
cabinet, economic adviser to government, Dr. Ashfaq, noted economists
Dr. A.R. Kamal, Dr. Sulman Shah, PP leader Shah Mehmood Qureshi,
Former Secretary General Finance, Mr I.A. Jafery, Chairman Riaz Malik
and Dr. Tahir of Planning Commission.
Referring to Indian hostilities, the Finance
Minister said Pakistan was exercising maximum restraint, but if the
war was thrust on the country "they will find us well-prepared to
meet the challenge. The country had all the resources and power to
ensure the national defence we have provided whatever was needed for
our defence forces and will continue to meet all their
requirements", he added.
On the budget 2002-03, which was the main subject
of The News pre-budget seminar: "Post-9/11 possibilities of
Economic Revival" Aziz said fostering growth and reducing poverty
would remain the primary focus of the coming budget. The government
was committed to pursuing the taxation reforms and administrative
reforms of the Central Board of Revenue to broaden the tax base and
Finance Minister Aziz and Chairman CBR Riaz Malik
both detailed some basic outlines of the reforms strategy. The
minister said reforms would focus on induction of the information
technology by eliminating the discretionary powers of the taxmen to
curb corruption. He also announced a self-assessment scheme in this
regard, and extended use of the computers in filing and analyzing of
On the issue of stability of the reserves and
exchange rate, Finance Minister Shaukat Aziz announced the
establishment of legally functioning exchange companies from July 1,
2002, under prudential regulations of the Central Bank, replacing
existing open market moneychangers. The banks would also be allowed to
sale and purchase foreign exchange, and the Central Bank would
intervene in the market through these banks.
Experts believe that unification of the kerb and
interbank exchange rate through the establishment of these companies
would help fetch $4 billion remittances through formal legal channels
from the fiscal 2002-03, against the anticipated over $2 billion
during the current fiscal year. At present, the State Bank of Pakistan
(SBP) made outright purchases, both through kerb and interbank, to
stabilise the value of rupee. The rupee had appreciated by 7 per cent
since September 11, due to large inflows of dollar and depressed
demand in the domestic market. The bank bought almost $2.6 billion
during first three quarters of the current fiscal year from the kerb
and inter bank market. Aziz said that such purchases were
necessitated, as the appreciation of rupee was hurting exports from
Pakistan that had shown 1.8 per cent decline during July-April, over
the corresponding period of the last fiscal year.
He also announced that tariff structure would be
streamlined further from the next fiscal year, with a maximum tariff
slab of 25 per cent, from 30 per cent at present. The government also
announced that tariffs on the industrial raw materials and other
inputs would be lowered further to reduce the cost of doing business
in the country.
Finance Minister Shaukat Aziz also spoke about the
financial health of the state-owned enterprises (SOEs) which he
claimed were better placed now after years of losses that forced the
government to pump in fresh liquidity to improve their balance sheets.
He said just in the case of Karachi Electric Supply Corporation (KESC),
the government had to put about Rs. 83 billion to cover its
accumulated losses. Now, he maintained, many SOEs were much better, as
cost cutting, structural reforms and liquidity support had improved
their outlook. He cited the example of the Nationalized Commercial
Banks (NCBs) as a success story, which he said were all set to go for
The minister said that a 3.3 to 3.5 per cent GDP
growth was expected during 2001-2002, with a low inflation of around 3
per cent. He said the government would target one per cent additional
growth rate for 2002-03 over the actual base of the current fiscal
There was almost a consensus amongst the speakers
(excluding government functionaries) that despite all rhetoric and
tall claims by the government the revival of economy was not yet in
sight. According to them the greatest cause of concern was the decline
in growth rte and the investment both domestic and foreign Mr. V.A.
Jafarey in his well documented article said. The immediate priority,
in the post rescheduling period should be to revive economic growth
and investment and other dynamics of the economy and accelerate
poverty alleviation measures. "By revival, I mean that we should
try, in the first instance to recover the pre-nuclear level of
economic activity and then reach forward to attain a growth rate of
6.5% of GDP with other indicators consistent with it". Since
1999, economic progress has been uneven. In the external sector, while
we have achieved stability and made noticeable progress in several
departments, the trend in foreign trade should be a cause of concern.
Exports have stagnated in the last four years. Imports have shrunk,
due to recession and low investment, Growth remains depressed. The
fiscal deficit has not deteriorated but it is nowhere near 4% of GDP,
the target relentlessly pursued by the IMF between 1988 and 1998.
However, the greatest cause of concern is the decline in investment,
total, domestic and foreign. The consequences of this decline for
future growth and wellbeing are too obvious to be stressed. There are
political and international factors which have weakened investors
confidence and which are beyond the reach of economic policy but there
are also economic reasons, Mr. Jafarey added.
Dr. Salman Shah in his paper said that it was
heartening to note that, of late, the policy makers and influential
International Financial Institutions (IFIs) had started talking about
the importance of growth but "I have not yet seen it being
translated into effective policies. I don't need to remind this august
gathering that while the government can take credit for correcting
some of the external sector imbalances our savings-investment
imbalances and low levels of saving and investment rates continue to
bedevil the economy." The all important economic growth rate was
at an all time low of 2.6 per cent last year and we are heading for
another year of disappointing growth. An early indicator of a further
slow down in the economy is a major drop in incremental credit takeoff
by the private sector this year. Between July 2001 and March 2002, the
drop has been an astounding Rs. 45.3 billion compared to the same
period last year. There is an air of bafflement and resignation in
official circles as to why economic growth has eluded us in spite of
Pakistan's diligent pursuit of prescriptions of the international
financial institutions (IFIs), he added.
Shah Mahmood Qureshi, the PPP leader, while
commenting on the sorry state of affairs in the agriculture sector
criticised the policies of the government, which have landed this
productive sector in great trouble. He spoke well and pointed out many
weak areas of the farm sector, which needed the immediate attention of
the policy makers.
Mr. Qureshi said for the last two years the growth
rate in agriculture sector had remained stagnated and people have been
made to suffer on account of sad developments on this front. For
example, he said GST on fertilizer had resulted in higher prices of
the commodity, resulting in the lesser use of it, which would further
affect the productivity of all the major crops. The price of diesel
have been revised upward considerably just when the farmers have been
busy in cultivating their cotton crop and this could affect the
productivity of the crop on which the whole national economy depends.
He said three areas needed to be looked into before thinking about the
revival of agriculture sector.
The first issue was of the water shortage and
unless we do not address it properly, agriculture would not come out
of its present stagnation. The second important issue according to Mr.
Qureshi, was the crises of marketing in the farm sector the farmers
have been plundered over the years in the name of private forces'
growth. But this element, far from extending help, is rather looting
the farmers and depriving them of their due rights, causing more
poverty in the rural areas. He said when the present government took
the reign of powers in 1999, the cotton crises emerged, which
virtually ruined the farms sector. A committee was formed to sort out
the matter, but no one knows about the fate of the recommendations of
the committee, while the farmers were left to bear the loss of
billions of rupees. Likewise, he added we are spending billions of
rupees on the import of oilseeds despite the fact that we can achieve
self sufficiency within four years provided right kind of policies
were pursued. This is the result of market failure.
He said now it was the 'Government of Technocrats'
who though take pride in their knowledge of the concerned sectors, but
have failed to deliver. For example, he lamented that they had failed
to convince the so-called technocrats sitting in Export Promotion
Bureau and Civil Aviation Authority that why the mangoes be sent
abroad from Multan. But the problem is still there. The mango product
is ready, the buyers is waiting for the consignment to reach the
destination, but again the marketing problem is there as the
technocrats are not ready to listen or help the mango growers. Last
year, the growers had a surplus of 1 million tons of wheat, but the
Commerce Ministry failed to sell it. He said we have no food
processing industry so our products are wasted locally and farmers are
not getting their due income.
The third point raised by Mr. Qureshi was the
failure to implement the policies framed by the respective governments
as after a lot of labour these reports and recommendation were
compiled but due to rapid changes of governments they could not be
implemented resulting in a deeper crisis.
Addressing the seminar the Commerce Minister Mr.
Razzak Dawood said that tariff restructuring exercise for the next
fiscal year has been completed and is being discussed with the Central
Board of Revenue (CBR) to give it a final shape. He said that the
Ministries of Commerce and Production went through an extensive
exercise to complete the task assigned last year for tariff
rationalisation. "We believe that business sector should be
internationally competitive at global level, and reduction in duties
is part of this strategy," Dawood said, adding that reduction in
duties led to increase in growth and production. He, however, added
that input cost in Pakistan was high and slashing of duties was
essential to make the industry competitive.
About trade policy, Dawood expressed
dissatisfaction on trade policies in the past, saying that several
sectors were ignored while framing those policies, and NWFP was the
main complainant for being ignored. Replying to a question regarding
investment, he said that investment was not impressive during this
fiscal year, except in oil and gas sector. He said that value-added
exports were expected to increase by 57 per cent against 52 per cent
of previous year and 37 per cent in 1999.
Governor of State Bank of Pakistan Dr. Ishrat
Hussain opined that new types of investors, those who take risk to
invest their own capital, believe in a certain work ethics, and are
innovative and motivated enough to penetrate in the word market are
not emerging in Pakistan. He was replying to a question at a seminar
as to why investment in the country was not picking up as earlier.