Finance Minister Shaukat Tarin on Thursday claimed that the International Monetary Fund (IMF) forced Pakistan to increase interest rates and electricity prices that doubled the cost of debt servicing and pushed inflation upward.
In a rejoinder to PML-N’s critique of the government’s economic policies, the minister also said that when the party was in power, the 5.5% economic growth rate was fueled by borrowings.
“Debt servicing increased because of the increase in interest rates,” Tarin told The Express Tribune.
He added that inflation had increased due to high capacity payments and the IMF forced the government to increase electricity prices by 46% at the start of the programme.
“The IMF put a gun to our head to set the interest rate at 13.25%, which increased the debt servicing,” he maintained.
“The high interest rate added Rs1.5 trillion into the annual debt cost and that was a gift from the PML-N.”
However, Tarin did not mention the hot foreign money, which became the root cause for setting the interest rates high.
Read more: Inflation excuses
The foreign lenders had set three conditions for investing in the government debt: the real positive interest rates, stable exchange rate and waiver of taxes on profits earned on hot foreign money.
The Express Tribune had reported that acceptance of these conditions led to inflows of $3.6 billion in a year that evaporated the moment the central bank cut the interest rates after the outbreak of the Covid-19.
To a question, Tarin said the investment-to-GDP ratio declined during the three year of the PTI but it was because of the Covid-19 outbreak.
“The 5.5% growth rate [during the tenure of the previous government] was fueled by massive borrowings that also heated up the economy,” the minister claimed.
“The last government kept the rupee artificially overvalued that caused a $20 billion current account deficit.”
To a question as to why the PTI government had not realised the debt report that Prime Minister Imran Khan had ordered to determine the use of debt during the PML-N's time, the minister said the Debt Commission’s report was not finalised yet.
He added that under the IMF programme, the government had curbed demand, leading to an increase in poverty.
“The government will increase tax revenues by 20% every year and improve the collection to Rs7 trillion in two years,” Tarin maintained.
The minister hoped that the Federal Board of Revenue (FBR) would collect Rs4.7 trillion this year and the target for next year was Rs5.8 trillion.
“A 13% increase in the collection will be due to nominal economic growth rate and the rest of the gap will be filled through tax base broadening measures,” he elaborated, adding that some of the tax exemptions would also be withdrawn.
“I am aware that some people have doubts about where the additional Rs250 billion will come if we do not take revenue measures but we will satisfy them,” the minister said.
To a question, Tarin said the IMF programme was not heading towards suspension and we were giving an alternate for not increasing the electricity prices.
Commenting on the state-owned enterprises’ losses, Tarin said that he gave a plan to former premier Nawaz Sharif to revamp them.
However, then finance minister Ishaq Dar and then Privatisation Commission chairman Muhammad Zubair did not accept it.
“We will now start restructuring and privatisation of the public sector enterprises,” he added.
Energy Minister Hammad Azhar, while responding to the PML-N’s critique, said the party had used selective data and then manipulated it.
“The PML-N’s economic team that was criticising the government actually brought the economy closer to default,” he added.
“When the PML-N government came to power, the debt service was $3 billion that jumped to $10 billion when it left.”
Hammad claimed that this year, external debt would increase by only $3.5 billion – an ambitious figure.
Industries and Production Minister Khusro Bakhtiar said if you adjusted the 40% currency devaluation during the PML-N's period, the size of the economy in dollar terms would be $261 billion at the end of its tenure.