Hafeez Shaikh stresses need for fiscal discipline

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  • PM’s adviser says it is not his intention to scare anyone but to paint a realistic picture that can give the people an understanding of what the govt is contending with

ISLAMABAD: Addressing a press conference at the unveiling of the economic survey, PM’s Adviser on Finance Abdul Hafeez Shaikh said the government is ready to take big decisions in order to maintain fiscal discipline.

He said it is important for people to understand the fundamental flaws in the country’s economy.

Taking note of Pakistan’s considerable indebtedness, he brought attention to impending debt repayments to highlight the severity of Pakistan’s economic crisis.

“This Rs31 trillion loan and Rs3 trillion interest payments becoming due in the next few years are our biggest challenge,” he stressed. “We need to keep it at the forefront of any discussion on the economy.”

The finance adviser regretted that Pakistan has no capacity to repay the nearly $100 billion in loans that policymakers in the past took out.

“This is an important issue which threatens Pakistan’s economy. We are highly exposed to foreign loans and foreign exchange which is not matched by our capacity to pay it back. No one has paid any attention to increasing this capacity.”

Pointing to the $32 billion trade deficit, the finance adviser said he is not here to play the blame game, but stressed nonetheless that necessary reforms to boost exports have not been taken.

“If you look at countries that have made meaningful progress over the last 20 years, they all did one basic thing: they figured out how to sell their products abroad,” Shaikh has said while stressing the need to reorient government policy to boost exports.

He also took a swipe at public expenses, noting that the government was spending Rs2.3 trillion beyond what it was generating in revenues.

“If you spend trillions beyond your income, you will need to borrow, print money and increase prices. These all lead to increased inflation,” he explained.

“We are already exposed on the external front, and we have imbalances in our revenues and expenditures as well. We have a twin deficit which, if it is not resolved, will lead us to a default. Make no mistake about it.”

“Prime Minister Imran Khan had committed to the people that he will do things differently and correct our imbalances in a permanent manner. Even if we have to bear (the pain) for six months, a year or a year-and-a-half, (we are committed to the process),” Shaikh said.

To a query, he said, “Naturally, the government started by addressing the key threats. First, imports. We were importing all sorts of things, and we had to control that. If we were facing a shortage of dollars, we do not need to buy luxury goods from abroad.

“We increased prices through tariffs so that if the rich wanted to purchase these items, they would have to pay extra. Duties were increased, and these measures contributed to the narrowing in the current account deficit.

“Separately, the government created incentives and new policies to boost exports. It gave more subsidies out of its pocket on power and gas to exporters and business. “On the foreign front, we tried to safeguard ourselves by mobilising dollar resources,” Shaikh added.

He said the prime minister himself raised $9.2 billion from three countries. Similarly, a deferred payments facility was secured from Saudi with a $3.2 billion programme. We secured a similar programme from the Islamic Development Bank.

“The people will see we are ready to impose fiscal discipline, balance our revenues and expenditures and live within our means. In the coming days, you will see bigger decisions that will show (our commitment to implementing) austerity.

According to Shaikh, the government’s priorities are to safeguard the economy, fix the institutions that have been ruined over time, improve foreign relations and start producing, facilitation of vulnerable people, incentives to the rich and strict austerity measures.

To several questions from reporters after his grim speech, Shaikh said it is not his intention to scare anyone but to paint a realistic picture that can give the people an understanding of what the government is contending with.

“We will unveil some sincere steps; you will see action in the budget tomorrow and beyond. These will build confidence,” he promised.

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