The government has contained budget deficit at Rs440 billion or less than 1% of the size of national economy in first two months of the current fiscal year as it now faces the challenge of translating improvement in economic indicators into betterment in lives of people.
The government reviewed the economic situation for July-August of fiscal year 2020-21 in a meeting of the Monetary and Fiscal Policies Coordination Board (MFPCB). Adviser to Prime Minister on Finance Dr Abdul Hafeez Shaikh chaired the meeting where the State Bank of Pakistan governor was also present.
The meeting was informed that the budget deficit remained at Rs440 billion or 0.9% of gross domestic product (GDP) in the first two months of FY21. The deficit - the difference between total expenditures and receipts - was almost 12% less than the same period of previous fiscal year.
However, the improvement came largely because of nearly 70% increase in non-tax revenue, thanks to higher petroleum levy rates.
The non-tax revenue, which stood at Rs92 billion during July-August of 2019, increased to over Rs112 billion, the meeting was informed. Tax revenue during the period grew only 1.8% to Rs587 billion.
The primary balance - total revenues excluding interest payments, also remained in surplus and stood at Rs43 billion during July-August of the current fiscal year.
The current account also recorded a surplus of around $800 million in the first two months of current fiscal year due to a one-off uptick in remittances in July, caused by layoffs of Pakistani workers in Gulf countries.
Shaikh is said to have appreciated the improvement in economic indicators but he sought to create a link between the indicators and the wellbeing of people, who had been adversely affected by a continuously high inflation.
“The finance adviser emphasised the active role of this board for designing policies to address economic challenges like inflation, stagnant exports, resource mobilisation, etc,” according to a statement issued by the Ministry of Finance after the meeting.
Shaikh did not buy the argument of Commerce Adviser Abdul Razak Dawood that exporters were getting a large number of export orders as there was no marked improvement in exports in the first two months, according to the officials. “Dawood observed that exports would register a sharp improvement in September 2020,” according to the statement.
However, Pakistan’s exports remain at around $2 billion per month despite the claims made by Dawood in the past two years. Exports contracted 16.6% to $3.4 billion during July-August of the current fiscal year.
Special Finance Secretary Mohsin Chandna presented the current economic situation of the country and stressed that the economy was on the path of recovery, according to the statement.
Chandna also highlighted various policy measures adopted to achieve high economic growth and create jobs.
Chandna is emerging as a strong candidate for the post of finance secretary after Prime Minister Imran Khan decided to appoint the current secretary, Naveed Kamran, as Pakistan’s Executive Director in the World Bank.
Kamran has remained the finance secretary for the past almost 15 months and his key focus has remained on fiscal consolidation.
SBP Governor Dr Reza Baqir informed the meeting that the current policy rate of 7% was appropriate, which “will support economic recovery”.
The governor said the inflationary pressure was also expected to ease in the coming months due to various policy and administrative measures taken by the federal and provincial governments.
The SBP governor appreciated efforts of the Ministry of Finance for constituting a technical committee to design a joint macroeconomic framework, which would help in drawing up an effective monetary and fiscal policy, which was the prime objective of this forum.
Shaikh also emphasised the need “for building capacity of the Pakistan Bureau of Statistics for providing reliable data, which will help in effective policymaking,” said the finance ministry.
PBS affairs have gone from bad to worse in the past two years and one of the most important national departments has remained headless for years. Shaikh questioned the credibility of data being produced by the PBS, said the sources.
The finance adviser stated that the mandate of the high-powered board was to review the overall economic situation and coordinate policy actions in an effective manner to achieve desired targets of key economic indicators.
Planning Commission Deputy Chairman Dr Jehanzeb Khan apprised the meeting that coronavirus had affected the confidence of both consumers and investors. However, the stimulus package of the government and the recent accommodative monetary policy were providing impetus to investment and growth.
Dr Waqar Masood supported the SBP’s monetary policy stance and stated that its continuation would be helpful in economic recovery.
Dr Asad Zaman emphasised the need for generating employment through growth and appreciated the present fiscal stimulus package of the government to enhance economic activities and employment opportunities.
Published in The Express Tribune, September 25th, 2020.
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