DNA overhaul must to foster sustainable economic growth: Finance Minister

Islamabad: Reaffirming the government’s resolve to implementing homegrown structural reforms, Federal Minister for Finance and Revenue, Senator Muhammad Aurangzeb here on Sunday emphasized the crucial need to bring fundamental changes in the DNA of country’s economy, leading to an export-driven model, thereby fostering sustainable growth.

“We need to adopt new approach. If we are saying that this is going to be the last programme of IMF, we have just embarked on, we have to change the DNA of economy fundamentally,” the minister said while addressing a press conference here. He was accompanied by Chairman Federal Board of Revenue, Rashid Mahmood Langrial.

He said, there were two main reasons for going to International Monetary Fund (IMF) for Extended Fund Facility (EFF) which include bringing permanence to macroeconomic stability and executing critical reforms under homegrown economic agenda.

He said, macroeconomic stability, creates a foundation and “if foundation is not strong, we cannot construct a house. “If we have to go for inclusive and sustainable growth, it has to be on the background of the macroeconomic stability,” he remarked.

The minister said the macroeconomic stability has continued during the first quarter of the current fiscal year, however it needed permanence to lead to sustainable growth. “Macroeconomic stability is not an end in itself, it is a means to an end,” he remarked.

Hence, bringing structural reforms was not only a requirement by the International Monetary Fund (IMF), but Pakistan needed it. He said, Pakistan was in defining moment, because it is going to determine the direction of the travel, and “we are very clear, about the direction of travel.”

For homegrown economic reform agenda, he said, we will always consult our thinktanks in country and take foreign advice into consideration as we go forward. “it is neither offence nor defence. We need best brains who can guide and support us.

He said that it had been cleared by local as well as outside thinktanks that the moment Pakistan puts foot on paddle and growth rate crosses 4 percent, it runs out of dollars because of being import led economy, and resultantly the country is stuck in balance of payment position and therefore had to run back the lenders.

Hence, there is need to change it fundamentally towards an export led regime, he said adding even the loans and foreign direct investment (FDI) have to be export-led. He said, he had made it clear to the investors at a function by BYD that their initiatives related to electric vehicles and investments are welcome, but they have to manufacture and assemble them in Pakistan and export from here. Our export to GDP ratio is stuck at 10% and need to move it forward, he added.

He said the measures taken by the government were showing positive results as indicated by economic indicators adding the results coming out were not theory but could be witnessed practically by seeing results.

The minister said, there has been 29 percent increase in exports on year on year basis whereas inflation has decelerated from 38 percent to single digit and would going down further. He attributed these developments to leadership of Prime Minister Shehbaz Sharif and also lauded caretaker government for the purpose.

He said, following the decline in inflation, policy rate has also come down while Kibor also declined, which he said would have positive impact on industry. He said, large corporates were now borrowing at Kibor minus at around 15 to 16 percent.

The minister said the government rejected domestic borrowing on Treasury Bills and Pakistan Investment Bonds (PIBs). The purpose was to give a clear message that the fiscal situation has improved with all time high remittances on back and increase in exports.

It also made it clear that government was in no desperation to borrow and if it needed, it would do at its own terms. Third message conveyed through this action was to encourage banking sector to lend to private sector, which have to lead the country.

On external front, he said, credit ratings have also gone forward and “we will continue this journey till we get into investment grade at least into B or B- ratings as we go forward”. He said PSX was also setting new records and moving in right direction.

He said, in addition to institutional flows (debt or equity) foreign direct investment was also coming into the country citing example of investments by Aramco, Gamber and BYD.

The confidence of investors gives clearance to the macroeconomic stability that is coming thorough, he remarked.

He reiterated government’s commitment to reduce size of federal government, adding decision regarding abolition or merger of six ministries has already been made and was at implementation stage, however added the government would need to amend Civil Servant Act 1973 for the purpose. He said, after this process is over, next five ministries would be taken for process.

On tax side, the minister said, the return filing has increased double from last years 1.6 million to 3.2 million till date whereas there were 300,000 new filers last year, however the number has risen to 723,000 till now. He said, this shows governments resolve to move forward.

In addition, he said, the terms non-filers and under filers have been abolished. The minister said there was around Rs1.3 trillion estimate tax evasion by individuals.

He said, if Pakistan wanted to be included in G20, it has to document it economy and do away with cash economy. He said, the country’s economy actually stands at $700 plus currently however it is shown only $325 billion.

Even tax collection could have Rs7 trillion upside impact as government goes forward. He said, there were 3 lack manufactures, only 14 % are registered whereas as out of 3 lac wholesalers, only 25 were registered in sales tax.

He said, government would make it condition for manufacturers to sell their products only to registered wholesalers. Likewise, he added government was also working on anti-smuggling measures and would introduce digital check post to have positive tax impact of around Rs700 billion.

He said, for uplifting the economy and implementing the reform measures, there could be a short term pain as there was no other option. However he made it clear that tough decision had to be implemented to put Pakistan on sustainable growth path.

He termed population growth at 2.55 percent and climate change as two major challenges which need proper consideration.