Finance Minister defends govt's economic policy, acknowledges painful impact

Finance Minister Asad Umar addressed a live Question and Answer session on the state of the country’s economy.

The session, broadcast live from social media accounts operated by the ruling Pakistan Tehreek-i-Insaf (PTI), saw the finance minister answer queries from an assortment of journalists from new and old media.

Umar identified several reasons why the economy is in a bad shape, but assured that there will be light at the end of the tunnel.

“There are two reasons why were are in this mess. We have a budget deficit, and secondly, our external deficit,” he said. “To resolve this you either need to increase exports or decrease imports. Our immediate action was to cut imports, which slows down the economy.”

The minister likened the economy and the political fallout of the government’s ‘corrective’ economic policies to a patient being operated on.

“It seems [to an outside observer] that he [the patient] has been cut open by a man with a knife in his hand, but the fact is that he [the patient] is being operated on by a surgeon [to alleviate his suffering].”

When asked how the government will come good on its promise to create two millions jobs a year as growth slows, Umar acknowledged the criticism.

“They say that if the economy does not grow at a seven per cent rate, two million jobs won’t be created. As a rule of thumb that [reasoning] is fine, but it [job creation] also depends on what our priorities are,” he explained.

“Tourism, small and medium enterprises (SMEs), information technology (IT), and housing all are priorities, and all these sectors have the potential of job creation,” he said.

“Some investments create more jobs, some less,” he added, arguing that the government’s priority areas would create disproportionately more jobs.

“There will be growth from year three onward, but it will be sustainable and long term,” he promised.

“In September, I went to the PSX [Pakistan Stock Exchange] and I was asked the same question: When will growth be seen? I told them that we will go through a stabilisation period of two years after six months of extreme turbulence. Then there will be growth.”

Acknowledging that the government had to tighten its grip on the fiscal policy side due to the rapid depletion of foreign currency reserves at the start of its tenure, the finance minister said things were improving. “Now that we are out of the fight for survival zone, the purse strings will be loosened.”

The minister was also questioned on the federal government recently raising prices for petroleum products by up to 6.45 per cent. When the minister was reminded that he had suggested that petrol prices should be set at Rs46 a litre during the PML-N government, he contested the claim.

“I had never said that petrol should be Rs46. I had said that the tax [on petrol] should be lower than it was,” he said.

“The tax ratio at the time was 52pc [of the total price of petrol], right now it is 30pc. Had we kept the same taxes as before, we could have silently gathered Rs97bn more from the Pakistani public. We have actually lowered tax ratios,” he insisted.

“Ogra (the Oil and Gas Regulatory Authority) does the petrol price calculation. On April 1, when the new prices were recommended [which included a Rs11 hike in the petrol price], the only thing the government did was reduce the recommended increase by Rs5,” he added.

A day earlier, Umar had announced that the government is planning to introduce another amnesty scheme to provide non-filers of tax returns an opportunity to whiten their undeclared assets at home and abroad.

When asked why he had taken an opposing stance to his stated position on amnesty schemes in the past, the finance minister conceded that the idea of amnesty schemes is a controversial one, but said it is the need of the time due to the prevalent system.

“Tax amnesty is controversial, of that there is no doubt,” he said. “You can say that it facilitates tax evaders, which will be a fair point. In my viewpoint, my previous objections are valid today as well.”

“But after consultations, the majority’s view is that it should be offered because in Pakistan the past system had been such that we want to give people a chance to come into the tax net.

“If the amnesty scheme does come, public officers and civil servants will not be eligible for it, even though some journalists have pointed out that they have the most money,” he said.

The finance minister also defended the government’s decision to not rush into an International Monetary Fund (IMF) programme at the start of its tenure.

“Is the economy in this state for the first time in Pakistan?” he asked.

“We have two world records: one in trolling and the other in entering IMF programmes. I talked to IMF officials and told them that ‘I don’t want to burden my nation with more loans’. They told me that the situation we have inherited has never been inherited by anyone else,” he claimed, explaining why the government had to go that route.

“When you take a responsibility, you also have to take a position. They used to say that the IMF programme should be taken immediately so that markets do not run away. After six months, our reserves are in a better shape. I did not rush into an IMF programme just so I could avoid criticism [over the pain from the corrective measures taken to stabilise the economy]. Having said that, an agreement will be reached soon.”

Asked that Prime Minister Imran Khan had recently indicated that Pakistan was on the verge of hitting a jackpot in the form of discovering a huge reserve of oil and gas, the finance minister explained that work is ongoing and the expectation is that a discovery, if made, will be significant.

“There is deep offshore drilling being done 250km away from [the coast of] Pakistan. They have to drill 5,000m deep, of which, last I checked, they had drilled 3,500m. There was some delay due to a rocky formation due to which they had to change their approach. When they finally reach 5,000m, we will know what the find is. But we know that its potential is big. It’s a high-risk operation, and ExxonMobil invests when a potential find is massive. If oil is found, it will be a massive find,” he said.

In February, Umar had said that talks to bring PayPal to Pakistan were [underway][4]. When reminded of that statement today, Umar struck a less definitive tone, asking his team to follow up on those plans.

“The IT ministry was given the task. They had to go in January. It hasn’t been done so far, but we are trying. But AliPay is already here,” he said.

When asked why the Federal Board of Revenue (FBR) has not done enough to raise awareness regarding tax benefits and incentives that come with entering the tax net, Umar asked Minister for Revenue Hammad Azhar to answer the query.

“It’s right that FBR’s optics are lacking,” Azhar said. “There is a lot of work to be done and there is an awareness deficit. We did do a concerted advertisement campaign, following which a 34 per cent increase was witnessed in on-time filing. But we should do a sustained campaign. We actually want to delve deep down and correct FBR’s fundamental problems. Once those are done, there will be a visible change and then we will [run more awareness campaigns].”

Rising inflation was also brought to the finance minister’s notice, to which he said that the issue will be taken up in an upcoming meeting of the Economic Coordination Committee (ECC).

Umar was also reminded of the numbers reportedly quoted by his sibling and PML-N leader Mohammad Zubair regarding the government’s economic performance. Umar contested the veracity of the numbers quoted as he maintained that the incumbent government’s performance is better than the former administrations’.

“According to Zubair Umar, the SBP numbers are bad,” he said. “I have told him many times to have any opinion he wants but please take the numbers from me. In PML-N’s first year there was double-digit inflation which has not been seen so far [in our tenure].

“When one attempts to move out of a balance of payment crisis, inflation rises. Ours [inflation in the PTI tenure] has increased but increased lower than theirs [in the first months of the PML-N tenure]. Moreover, in their government, inflation was borne mostly by the lowest income class. This time, the opposite has happened; the rich have suffered.

“As far as unemployment is concerned, even [economist] Hafeez Pasha has said this much, that under the PPP, unemployment increased, and under the PML-N, it increased even more sharply. If you observe the textile industry, the people who had exited the industry are actually coming back,” he said.