Aurangzeb outlines tough measures for stability

Finance Minister Muhammad Aurangzeb has reiterated the government's commitment to achieving macroeconomic stability as a foundation for sustainable growth. Addressing the Karachi Chamber of Commerce and Industry (KCCI) on Tuesday, Aurangzeb highlighted the critical need for difficult decisions to stabilise the economy before pursuing growth-oriented initiatives, according to a press statement released by KCCI.

The finance minister explained that without macroeconomic stability, any growth-focused measures would lead to balance of payments (BoP) issues, as seen in the past. “We must take difficult decisions for macroeconomic stability, which, once achieved, will ease the burden on the business community and salaried class,” he stated.

He acknowledged the structural issues in the economy, noting that attempts to accelerate growth often result in BoP problems. “This is a fundamental issue we must resolve. We can only pursue growth when we have enough fiscal space, which should be export-led. The business community, exporters, and the value-added sector must play a role in this,” he said.

Aurangzeb admitted that the increased taxes on the salaried class were a short-term measure, albeit an unpopular one. “We raised taxes on the business community and salaried class this year, but we cannot continue this approach. Untaxed sectors, including retailers, agriculture, and real estate, must be brought into the tax net to reduce the burden on existing taxpayers,” he said. He appreciated the provincial governments for agreeing to legislate for taxing the agriculture sector.

Highlighting the importance of effective taxation enforcement, he said, “We are at the end of the road. We cannot keep raising taxes on the business community and salaried class. We need to bring untaxed sectors into the economy.”

Commenting on the State Bank of Pakistan’s (SBP) recent decision to cut the interest rate by 1%, Aurangzeb described it as a positive step. Despite potential inflationary impacts, he believed the SBP had room to further reduce interest rates gradually. “High interest rates, taxes, and energy tariffs are significant burdens on the business community. The government recognises these issues, but relief can only be provided within available fiscal space,” he added.

Aurangzeb set ambitious targets for agricultural and IT exports, urging the business community to strive for $10 billion in agricultural exports and $5 billion in IT exports. He also called on banks to increase lending to the private sector, particularly to farmers and Small and Medium-sized Enterprises (SMEs), based on cash flow rather than collateral.

He assured that all determined tax refunds up to June 30, 2024, totalling Rs51 billion, were released to industries on July 1, 2024. Including duty drawbacks, overall refunds would amount to $70 billion. “Holding these refunds raises liquidity costs for industries as they acquire working capital at around 20% interest, adding to the cost of doing business,” he said. He pledged that the government would release refunds promptly.

Addressing misconceptions about ministerial perks, Aurangzeb clarified, “I do not take a salary, and all ministers present at the KCCI today pay their bills from their own pockets. At the federal level, we must reduce expenditures.”

He recalled Dr Ishrat Hussain’s report on right-sizing the government, which was never implemented. A right-sizing committee under the PM’s supervision is now reviewing ministry and entity expenditures.