Govt plans uplift funds diversion

Will utilise those funds to tackle flood devastation, help rehabilitate people

KARACHI:

Pakistan’s economy may slow down beyond the targeted level in current fiscal year as the government has decided to divert development funds to the fight against flood devastation to help rehabilitate people and their livelihoods.

“PSDP (Public Sector Development Programme, or development funds) is being diverted…to cope with floods,” Finance Minister Miftah Ismail announced while speaking at the Institute of Business Administration (IBA) on Friday.

“PSDP is good for economy. It supports economic activities (and employment opportunities),” he remarked.

Earlier, the government allocated Rs800 billion for development work like building road networks, dams, telecommunication and power infrastructure. In June 2022, it set economic growth target at 5% for current fiscal year 2022-23.

However, heavy monsoon rains and flash floods have changed the economic scenario. The government has initially estimated flood losses at $10 billion in the wake of widespread damages to the standing crops of cotton, rice, sugarcane and vegetables.

Earlier, it discouraged imports through heavy duties to cool down the overheated economy. Now, the floods and high inflation are feared to push the economy far below the target.

The finance minister said he feared industries including banks, fertiliser, cement and steel might approach the government to demand subsidies to address the flood challenges.

He revealed that he was considering imposing 5% tax on all those exporting industrial units that were shipping less than 10% of their production to overseas markets. However, he could not do so keeping in view the new challenges posed by the massive floods.

According to the minister, increase in export earnings is the only way forward to steer the country out of the current account deficit (CAD) cycle as the country’s imports remain far higher than the export earnings.

When a student asked what was the roadmap for ramping up exports, the minister replied, “he has no plans”.

He asked the IBA faculty and students to conduct studies to suggest a roadmap for the increase in exports. “I would also reach out to LUMS faculty and students soon to seek a study on how exports can be given the boost.”

Pakistan’s economic structure had flaws with a high recurrent trade deficit. The country made imports worth $80 billion and exports valuing at $30 billion in previous fiscal year, the minister pointed out.

“Thanks to the worker remittances of $31 billion that financed the wide trade gap in FY22,” he said.

However, the external economy has started improving with shrinking trade and current account deficits. Such development has helped the rupee to stabilise in recent days.

Ismail, however, dismissed talk that the central bank would make any intervention (supply dollar in inter-bank market) to prop up the rupee against the US dollar.

“Foreign currency inflows were recorded at $6.98 billion and outflows at $6.86 billion last month (in August), suggesting the demand and supply of foreign exchange has equalised in the economy.”

The central bank with a small amount of foreign exchange reserves at around $10 billion can no more afford to inject dollars into the market to support the rupee. “I will not inject a single dollar,” the minister remarked.

Published in The Express Tribune, September 3^rd, 2022.

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