PTI govt likely to present second mini-budget in Jan

Finance Minister Asad Umar briefs Senate body on pace of economic reforms suggested by IMF

The four-month old government of the Pakistan Tehreek-e-Insaf (PTI) may present its second mini-budget to the Parliament in early January, as the current level of fiscal deficit was not sustainable, said Finance Minister Asad Umar on Wednesday.

“Yes, there is a proposal to increase taxes and tariffs but nothing has been finalised yet,” said the minister, while giving a briefing to the Senate Standing Committee on Finance and Revenue on the state of negotiations with the International Monetary Fund (IMF).

He also disclosed that Pakistan has secured $3 billion loan from Saudi Arabia at 3.18% interest rate. The Saudi oil facility on deferred payments will also become effective from next month when Pakistan will start receiving $274 million oil on a monthly basis.

“The money bill, most probably, will be presented to the Parliament in early January,” said Umar, without disclosing the tax measures his government will impose on the people.

He briefed the committee about the pace of economic reforms, suggested by the IMF in return for providing a second bailout package in the last five years. The minister said the fiscal deficit at the current level was not sustainable, which was one of the concerns of the IMF.

It will be the second mini-budget by the PTI government after presenting the first one in September this year, suggesting ad-hocism in economic policymaking. After the first mini-budget Umar had assured that the fiscal crisis was over and now his government’s focus would be on overcoming the external sector crisis.

After the committee meeting, the finance minister said the mini-budget is being prepared in light of the recommendations given by the Economic Advisory Council. Responding to a question whether the government should wait for the next fiscal year’s budget, the minister said there was no need to waste time.

The poor performance of the Federal Board of Revenue (FBR) has forced the government to take the politically costly decision of bringing the second mini-budget.

The pace of reforms suggested by the IMF will be inflationary and could create problems, as in some countries this even led to riots, said Pakistan Peoples Party (PPP) Senator Sherry Rehman, member of the standing committee, while commenting on Umar’s briefing.

“At a time when it is extremely difficult for the poor people to meet both ends, questions will be raised about which international agency has directed to bring the mini-budget,” said Senator Rehman after the committee meeting.

During his briefing to the senators, the finance minister said there were political and economic consequences of the pace of reforms suggested by the IMF.

“I will not bank on IMF alone and part of the reason is the political consequence that Senator Sherry Rehman pointed out,” he said, while sharing views of the senator.

Further increasing the pace of adjustments is not in the interest of Pakistan and it may lead to crash landing of the plane, he said, adding, “The IMF wants fast track pace of reforms but we want safe landing of the plane.”

Senator Rehman also raised the issue of currency devaluation. She said fluctuation of Rs10 in the value of rupee against the US dollar in a single day rattled the markets and also gave an impression that the government was implementing free float exchange rate regime.

However, the minister said the November-30 exchange rate movement did rattle the markets but there should be economic matrix to gauge people’s confidence instead of making drawing room conversations as a measure of market trust.

He said from December to July there was devaluation of Rs3 per month on an average, which slowed down to Rs2 per month from August to December of the current year. Rs143 to a dollar was more of theoretical rate as no major transaction was settled at this rate on November 30, he remarked. SBP Governor Tariq Bajwa told the committee that transactions worth only $2 million were settled, which makes up hardly 1% of the total daily trading volume.

The minister said the final decision on the exchange rate value rests with the central bank but the finance ministry and the SBP work closely with each other.

“The SBP governor is making correct decisions,” said Umar, while posing his confidence on Bajwa.

While referring to the November 30, episode, the minister said the central bank governor had informed him that the spread between the open market and interbank market was widening and there was a need to take some corrective measures.

“My view was that there should not be big movement but the governor said that it would not work,” he said, adding the governor only informed me that there will be movement in the exchange rate market but he did not tell me the quantum and timing of the adjustment.

Umar said that he also informed the prime minister that there will be movement in the exchange rate market but did not inform him about the extent and timing of the devaluation.

“Since December, the SBP has adjusted the value of the currency six times and every time it has been done in consultation with the federal government,” said Bajwa. On November 30, when we gave message to the market to devalue the currency it overreacted on expectation of major adjustment, he added.

The Minister for Finance said it was wrong to say that the government has not taken corrective actions. It has made biggest fiscal and monetary adjustments outside the IMF programme.

He said as a result of these measures, the current account deficit is expected to narrow down from $19 billion to $12.5-13 billion by the end of this fiscal year.

We have already arranged $12 billion to fill the financing gap and are not in a hurry for an IMF programme, said the minister.

He said Pakistan will pay 3.18% interest rate on the $3-billion Saudi Arabia loan. From next month the Saudi oil facility on deferred payments will become operational and Pakistan will receive $274 million oil on deferred payments per month, he said, adding talks with the United Arab Emirates (UAE) and China were underway. Pakistan will get commercial loans from China, he added.

Published in The Express Tribune, December 20^th, 2018.

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