FINANCE MINISTER ‘s SPEECH AT REPUTED THINK TANK, CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE IN Washington ON 17-04-2015

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FINANCE MINISTER ISHAQ DAR’s SPEECH AT REPUTED THINK TANK,

CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE

Washington

 

“Revival of Pakistan Economy and its Future Prospects”

 

Distinguished Guests,

Ladies and Gentlemen,

 

Assalam Alaikum and Good Morning,

 

I am delighted to be with you, amongst this gathering of distinguished scholars, practitioners and academics who have come together to share knowledge and wisdom on international peace and development. This forum has provided a wonderful and focused opportunity to share our thoughts on issues that matter to the world today and to find out ways to meet the challenges and opportunities that come in the way.

 

Prime Minister of Pakistan, Muhammad Nawaz Sharif, has enunciated “peace for development” as the defining principle of Pakistan’s foreign policy. Building a peaceful neighborhood and a rebalancing between geo-strategic and geo-economic priorities constitute the main pillars of this policy. Our government has embarked on resolute efforts to create a peaceful external and internal environment so that the core national objectives of economic development are achieved.

 

Ladies and gentlemen,

 

On the economic front, far-reaching initiatives have been taken by Pakistan with neighboring countries, including enhancing bilateral trade, streamlining transit trade issues, increasing investment cooperation, strengthening connectivity through road and rail links, and promoting energy collaboration.

 

Our government inherited a broken economy in June 2013; there were threats of default and people were expecting that Pakistan will default in 2014. However, with proper planning and concrete efforts the country’s economy is now on track and moving in the right direction of economic revival. Our destination is to stabilize and sustain it. The government is implementing a four point agenda as per its manifesto and focusing on energy, economy, education and elimination of extremism.

 

Within a few months of presenting the first budget in June 2013, the government introduced deep-rooted economic reforms and undertook necessary tax measures without which meaningful hope for economic revival was not possible. Furthermore, government launched Euro bonds and International Sukuk in the international capital market and divested its shares in banks like Habib Bank and United Bank, which not only improved the reserve position but also revived the investors’ confidence.

 

Ladies and gentlemen,

 

Due to sound economic policies of the government, a GDP growth rate of 4.14 percent was achieved in the financial year 2013-14 which is the highest level during last 6 years. We have targeted our growth at 5.1 percent for 2014-15; despite floods, agriculture performance is satisfactory on account of better production of both wheat and cotton crop. Large scale manufacturing has started to show improved results.

 

All inflationary indicators are on a downward trajectory. Consumer Price Index – the headline inflation – for March 2015 was the lowest since 2003 on year-on-year basis and was measured at 2.5 percent. On average, during July-March financialyear 2014-15, inflation was recorded at 5.1% as compared to 8.6% in the same period of financial year 2014-15, which is well below the target of 8%. During July-February financial year 2014-15, exports stood at US$ 16.1 billion while imports amounted to US$ 27.8 billion. Efforts are under way for products and market diversification. Current Account Balance has remained broadly in line with expectations. Current account posted a surplus of US$ 877 million in February 2015 and, during July-February financialyear 2014-15, deficit of US$ 1,614 million was posted against a deficit of US$ 2,453 million during same period last year. Containment in Current Account Balance is on account of high growth in workers’ remittances. During July-February financialyear 2014-15, the remittances increased by 14.7 percent as compared with same period last year and reached US$ 11.75 billion.

 

Likewise, during July-March financial year 2014-15, the revenue collection by the Federal Board of Revenue posted a provisional growth of 12.2 percent and amounted to Rs. 1,766.8 billion as compared to Rs. 1,574.7 billion during same period last year. The Stock Exchange market has continued its upward trend and presently it is trading above 32,000 and is among the world’s top performers. The country’s foreign exchange reserves stood at US$ 16.8 billion on 9th April 2015.

 

Ladies and gentlemen,

 

Our government is following a prudent fiscal policy; as a result, fiscal deficit was brought down to 5.5 percent during financialyear 2013-14 which was much lower than 8.2 percent in the last year. For the current fiscal year, the target is to contain it further to 4.9 percent. During July-February 2014-15, the fiscal stood at 3.3 percent. It is also important to mention that debt management has improved in terms of maturity profile and interest rate and there is a massive reduction in public debt from the State Bank of Pakistan and an effort has been made to provide an opportunity to general public to invest in government papers. The Securities and Exchange Commission of Pakistan is playing its due role in this direction.

 

Ladies and gentlemen,

 

I assure you that Pakistan of today is much better than Pakistan of yesterday as it stands on the verge of a momentous transformation. Our government is fully committed to harness the economy of Pakistan through appropriate policies and a strategic vision. The government has a long term development plan “Vision 2025” aimed at creating a globally competitive and prosperous country for all residents, with particular emphasis on achieving macroeconomic stability through inclusive growth. We aim to achieve growth of around 7%. This is necessary to address poverty incidence and unemployment while improving socio-economic indicators, including health and education. We are also working to improve the energy mix to avoid the need for tariff increases and to attract foreign direct investment. Equal attention is being given to provision of a conducive and viable environment for investment and economic prosperity. There is a resolve to improve the reform agenda with equal attention in the field of technology. Auction of 3G/4G licenses is an expression of our commitment which will not only bring hi-tech technology in the country but will also create more job opportunities. We have introduced transparency and good governance in the government’s working. Last year we published a Parliamentarians’ Tax Directory – becoming only the fourth country in the world to do so – and followed it with a General Tax Directory. We have continued this practice this year.

 

Ladies and gentlemen,

 

Due to our government’s efforts since June 2013, international think tanks and research groups have recognized Pakistan’s impressive economic turnaround in the first year of our government. I will briefly mention these here:

 

  • JETRO has declared Pakistan second in terms of business growth).
  • Goldman Sach’s Jim O’Neill forecast that Pakistan would be world’s 18th largest economy by 2050.
  • OICCI raised its index from -34 to +2.
  • In Nielsen’s Global Survey of Consumer Confidence Pakistan rose to 99 in the 1st quarter of 2014 from the lowest level of 86 in 3rd quarter of 2011.
  • IFR Asia 2014 declared Pakistan Issuer of the Year.
  • Morgan Stanley declared that rise of Pakistan was just a matter of time.
  • Moody’s has declared China-Pakistan Economic Corridor as “credit positive” for the country because “it will spur investment activity, boost bilateral trade flows and help ease the country’s growing energy shortages”.
  • Pakistan’s outlook by Moody’s was negative when our Government took office in 2013. It was raised to stable after one year’s performance. The outlook has now been raised to positive on 25th March 2015.
  • Bloomberg says that despite challenges:

o   the corporate earnings in Pakistan are soaring

o   stocks have surged

o   the currency is among the world s top performers.

  • Pakistan was included in the Grey List of FATF in the year 2012. Due to our Government’s concerted efforts (including implementation of National Action Plan), FATF has removed Pakistan from the Grey List and included it in the White List now.
  • Pakistan was declared ineligible for IBRD financing in 2012 as our forex reserves fell below the required threshold. Now our forex reserves have exceeded US$ 16 billion (including over US$ 11 billion with SBP) making Pakistan eligible again for IBRD financing.

 

Ladies and gentlemen,

 

Now I would like to mention briefly our future vision and roadmap. Our elements of vision, based on PML(N) Manifesto (4 E’s) and our Medium Term Plan, are as follows:

 

  • GDP to grow gradually to around 7%
  • Inflation to remain in single digits i.e. less than 8%
  • Fiscal Deficit to be brought down to 4%
  • Foreign Exchange Reserves – US$ 20 bio
  • Investment-GDP Ratio – 22%
  • Industrial sector to grow by 8%
  • Public debt to be brought down to less than 57% of GDP
  • Tax-GDP Ratio to be increased to 15%
  • Exports to be increased to US$ 32 bio
  • Foreign Direct Investment to be increased to over US$ 5.5 bio
  • Expending around 4% of GDP on education and health, with key social indicators equal or better than regional countries
  • Poverty Alleviation and Support to vulnerable sections of the society
  • Massive reduction in load shedding of electricity
  • Shortage of gas to be met with enhanced supplies through increased exploration / production and imports, both over-land and sea

 

Ladies and gentlemen,

 

Pakistan’s geography is bounded by Iran, Afghanistan, China and India. Pakistan’s stability and economic prosperity will contribute immensely to the peace and stability of the region that houses more than half the world’s population. The region is also home to a sizeable number of world’s poor. End of conflict in any part of the world will improve economics, but none would do so at a scale as it will in this region. Therefore, it is in the interest of this region to remain free of conflict so that greater amount of resources is diverted for improving the lives of its peoples.

 

While Pakistan is endeavoring for good and peaceful relations with all its neighbours, China, in particular, has invested significantly in Pakistan in almost all economic sectors recently. We are expanding our economic ties with China by building the China Pakistan Economic Corridor that will link Gawadar to Kashgar, both through railways and highways, sub-planting the old Silk Route. The concept of the Economic Corridor will usher a new era of economic cooperation in the region by opening otherwise inaccessible areas and link them to profitable markets in the entire neighborhood.

 

Apart from contributing to regional economy through cooperation with its neighbours, Pakistan is actively promoting a number of projects that would enhance regional connectivity and joint exploitation of regional resources. Three projects are notable in this regard. First, the CASA-1000 is the Central Asia South Asia electric power transmission project that will transmit already available surplus power to deficient countries, Pakistan and Afghanistan. The 1,222 km long transmission line, costing nearly US$ 1 billion, will originate in Kyrgyz Republic and pass through Tajikistan and Afghanistan and terminate in Pakistan. It will supply 1,300 MW of power; 300 MW for Afghanistan and 1,000 MW for Pakistan. Our government has played a lead role in reviving this years old project which existed on paper and is trying to make this project a reality. Second, we are the central part of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project, which will supply natural gas from Turkmenistan to Afghanistan, Pakistan and India. The project is lead-managed by the Asian Development Bank and will contribute immensely to lessening the energy shortages in South Asia. Third, Central Asia Regional Economic Cooperation (CAREC) is a partnership of 10 countries (Afghanistan, Azerbaijan, Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, China, Tajikistan, Turkmenistan and Uzbekistan), supported by 6 multilateral institutions, working together to promote development through cooperation, leading to accelerated growth and poverty reduction. The priority areas of cooperation are transport; trade facilitation; energy and trade policy. CAREC Ministers have recently approved a US$ 23 billion Action Plan for undertaking regional connectivity projects in the priority areas in member countries.

 

Other initiatives taken by the government for regional connectivity include:

 

  • Effective and smooth implementation of the Afghanistan-Pakistan Transit Trade Agreement (APPTA) which will generate revenue through transit trade and facilitate trade with Central Asian Republics.
  • Negotiations on Trilateral Transit Trade Agreement between Pakistan, Afghanistan and Tajikistan which are in final stage and will help integrate our region by promoting trade and supply chain linkages. Turkmenistan and Kyrgyz Republic have already expressed their willingness to join that agreement.
  • Pakistan-Afghanistan Joint Business Councils have been notified and will help promote private to private business interaction.

 

Ladies and gentlemen,

 

Investment is a mirror image of the economy. To achieve and ensure sustainable growth, increase in investment growth is imperative. Our government is focused on improving investment climate in the country through the implementation of investment strategy 2013-17, which hinges upon the main pillars; public private partnership dialogue for policy formulation, FDI generation and promotion, campaign investment facilitation (one window operation), development of Special Economic Zones and coordination with stakeholders.

 

The Board of Investment has undertaken an exercise to improve the investment climate in the country by reducing procedures and cost/time which focuses on the following Ease of Doing Business Indicators:

 

  • starting a business,
  • paying taxes,
  • trading access borders,
  • getting credit,
  • getting utilities services,
  • enforcing contract.

 

Ladies and gentlemen,

 

Let me conclude by stating that an economically strong, democratic Pakistan will not only defeat extremism at home but would contribute immensely to the stability of the region. It will also be an engine of growth for the regional economies with its strategic location and contiguity to vast land mass of South Asia and other parts of the world.

 

I thank you all.

 

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