PR No. 42 Ministry of Finance Spokesman Responds to Press Talk by PTI leaders Islamabad: 8 September 2017

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PTI leaders on Thursday criticized the economic performance of the Government of Pakistan in a Press Conference. The Ministry of Finance responds to the undue criticism as follows:

    The PTI leaders instead of taking a holistic view of the economy, presented a distorted picture of selected economic indicators, while deliberately ignoring many important milestones achieved in economy.

It needs to be borne in mind that GDP had reached the lowest level of 0.36% in 2008 and thereafter growth remained patchy with an average of 2.8% between 2008-2013. Inflation was in double digits in 2008-09 reaching the highest level in the history at 25.3% in August 2008. Overall during 2008-2013 inflation on average hovered above 12%. The policy rate was as high as 14% in 2008-09. The agriculture credit disbursement in 2008-09 was Rs.233.1 billion while on average it was at Rs.264.3 billion between 2008-2013.  Forex reserves were at historically low levels and there were predictions of Pakistan going into default. Doors were closed by various multilateral and bilateral agencies for funding program. Credit rating agencies like S&P and Moody’s had downgraded Pakistan’s ratings.

 

Pakistan has seen a visible economic improvement during the last four years, due to successful implementation of a comprehensive programme of economic revival aimed at higher economic growth and macro-economic stability.

 

It is important to note that the GDP growth which was very unstable during 2008-13 has now been stabilized. In FY2014 GDP growth crossed 4% at a time when the country was confronted with a number of security challenges and settlement of IDP’s issues. Despite challenges, the growth momentum remained above 4% for the last three years in a row and reached a decade high of 5.3% in 2017.

 

This sustained and broad based growth was on account of remarkable performance of agriculture, industry and services along with pro growth supportive policies of the government whereby agriculture credit disbursement increased from Rs.336.3 billion in FY2013 to Rs.704.5 billion in FY2017. For FY2018 it is targeted at Rs.1 trillion. Similarly, subsidized intensive fertilizer off take, agriculture Kisaan package, and a number of other incentives given to the farming sector has provided the needed support to the agriculture sector.

 

 

 

Likewise the industrial sector grew from 0.75% in FY2013 to 5.02% in FY2017.In FY 2017 industrial sector maintained its growth momentum above 5% for three consecutive years since FY 2015. The growth in Electricity Generation & Gas Distribution was at -26.38 % in FY2013 and has now improved to 3.40% in FY2017.  The LSM sector posted a phenomenal growth of 5.63% in FY2017.

 

Services sector grew from 5.13% in FY2013 to 5.98 % in FY2017 on account of increase in aggregate demand and better output in agriculture and industrial sector.

 

The performance of the banking sector has also remained impressive. Its asset base reached Rs 15.831 trillion by end December 2016 compared to Rs. 10.487 trillion by end December, 2013, registering a growth of 50.9%. Capital Adequacy Ratio (CAR) at 16.2% as of end December 2016 compared to 14.9% as of end December 2013 is much stronger and higher than the minimum required level of 10.65%.

 

Total investment increased by 50.1% over FY 2013. It increased from Rs.3,348.3 billion in FY2013 to Rs. 5,026.8 billion while as percentage of GDP it increased from 14.96% in FY2013 to 15.78% in FY2017.

 

Worker’s remittances increased from $13.9 billion in FY2013 to $19.3 billion in FY2017. Unlike the claims made in the Press Conference FDI improved from $1.456 billion in FY2013 to $2.410 billion in FY2017, thus posting a growth of 65.5%.

 

The foreign exchange reserves which were at the lowest level of $7.58 billion in February, 2014 have increased to $20.304 billion as on 6th September, 2017.

 

The flows of credit to private sector improved to Rs.747.9 billion in FY 2017 compared to a decline of Rs.7.6 billion in FY 2013. Policy rate has been reduced to 5.75%, which was at the lowest level in last 45 years. In June 2013 it was at 9%.

 

Fiscal deficit reduced to 5.8% in FY2017 against 8.2% of GDP in FY2013, despite increase in development and social protection spending.

Due to these improvements in the economy, the international credit rating agencies increased Pakistan’s credit ratings.

 

In BISP the number of beneficiaries has increased from 3.7 million in FY2013 to 5.6 million in 2017. Its allocation increased from Rs. 40 billion in FY 2103 to Rs. 121 billion this year.

 

Poverty has been reduced. According to the Cost of Basic Needs (CBN) method from 64.3% in FY2002 to 29.5% in FY2014 and under the old Food Energy Intake method (FEI), reduced from 34.66% in FY2002 to 9.31% in FY2014.

The present government improved relations with International Financial InstitutionsThe country has witnessed the resumption of policy lending from the World Bank and Asian Development Bank, which was suspended for lack of a stable macroeconomic framework before June 2013.  After achieving macroeconomic stability and the requisite increase in foreign reserves, Pakistan was also declared eligible again for IBRD facilities.

 

Pakistan and IMF successfully completed the Extended Fund Facility (EFF) program which indicates government’s commitment in implementing structural reforms in the areas of taxation, energy, monetary and financial sectors as well as public sector enterprises. It may be noted that earlier program with the IMF remained unsuccessful.

 

Energy

 

Before the present government, energy outages were common. Cities faced load- shedding of 12 to 14 hours while in rural areas it  was 16 to 18 hours. The average shortfall stood at 5,000 MWs prior to PML-N tenure, which has been reduced by effective management of resources to a level of 2,000MWs and is likely to be eliminated by end of 2017.

A normal Thermal power project takes around 3-4 years to construct and become functional and this time frame is 6-8 years for Hydro power project. The increase in shortfall is mainly due to rise in electricity demand in the last 4 years (from peak demand of about 19,000MWs in 2013 to a Peak    Demand of 24,000+ MWs in 2017).

When the present government came into power, it initiated work on various projects, which includes 3,600 MWs of RLNG power plants, 2,640 MWs of coal power generation and various other power generation projects. These projects will add a total of 9,900 MWs, which are expected to be online in the next 12 months, which will minimize the electricity shortfall. Further the government has also undertaken broad based power sector reforms under the framework of the National Power Policy 2013. Implementation of these reforms has resulted in improved availability of electricity.      The country’s second LNG import Terminal is expected to become operational before end of 2017; the terminal will add an additional 600 mmcfd of RLNG in the country, making the total share of RLNG at 1,200 mmcfd. This landmark project will reduce Pakistan’s gas deficit by 30 %, provide fuel for 3,600 MWs of new power generation plants being set up in Punjab and reduce reliance on expensive fuels like diesel and furnace oil.

 

Debt

 

With regard to debt, the claim that PML(N) government borrowed record Rs.10.8 trillion is incorrect and based on incorrect projections. The statement is only intended to mislead the general public by including projections of such debt and  liabilities which are not part of government debt.

Moreover, the contention of large borrowing from external sources is incorrect. Out of total debt, external debt proportion fell from 21.4% of GDP in 2013 to 20.6% of GDP in 2017. Against the total external debt, the largest component is multilateral and bilateral concessional debt, which constitutes around 85% of the total.

External debt sustainability has increased manifold during the tenure of present government as recent debt sustainability analysis shows that external debt would remain on a downward trend over the medium term and staying well below the risk assessment benchmarks. The increased sustainability of external public debt is also evident from the fact that the ‘Share of external loans maturing within one year’ has been reduced from 68.5% of official reserves at the end of June 2013 to 31.9% at the end of December 2016 showing improvement in foreign exchange stability and repayment capacity.

 Exports

 

Regarding the claim that our export have gone down while exports from India and Bangladesh increased is not correct as almost all countries suffered downward trend due to overall depressed world economic growth. Further comparison with Bangladesh is not appropriate as Bangladesh having status of Least Developed Countries (LDCs) still enjoys many concessions. Likewise discussing imports, it may be noted that in FY 2017, import bill rose mainly due to increase in import of machinery group. The growth in import of machinery is a sign of growth in economy. As per SBP, the import bill of machinery US $ 4.9 billion in FY 2009 rose to US $ 7.9 billion in FY 2017.

 

Taxes

 

With regard to the claim that direct taxes had registered a decline, it is clarified that the share of direct taxes in total taxes has increased over the years. In 1990-91 the direct taxes were just around 20% of total taxes. It increased to to 31.1% in 2004-05. , In FY 2016-17 the share of direct taxes reached at 40% and it has become the single largest tax collected by FBR. The government is focused on further increasing the share of direct taxes through various policy and administrative reforms including broadening of tax base.

 

Substantial progress has been made in the efforts to bring potential taxpayers in the tax net during the last four years. As a result of these efforts the number of income tax return filers which was around 766,000 for the tax year 2012 has exceeded to 1.26 million in the tax year 2016 and would further increase in coming years.

The reforms program has started paying dividends in shape of higher tax revenues and an efficient, modern, transparent and taxpayers’ friendly revenue organization. The revenue collection has witnessed a substantial increase during last four years. The net collection increased from Rs.1,946 billion in 2012-13 to Rs.3,362 billion in FY 2016-17, registering an overall growth of around 73%. In absolute terms revenue collection has been increased by Rs.1.4 trillion. The tax-GDP ratio of the country has reached to 12.5% in FY 2016-17.

 

Sales tax refunds

 

The pendency of total sales tax refund claims as on 30-06-2017 is to the tune of Rs.139 billion which was 3.9% of revenue target of Rs.3,521 billion for the year 2016-17. It is further added that the pendency as on 01-07-2013 was Rs.100 billion which was 5% of revenue target of Rs. 2,007 billion for the year 2012-13. The comparison shows that since the present government took over in 2013, the refund pendency has decreased as percentage of revenue target. As on today the figures of pending refunds have further been reduced, since the present government has already issued more than Rs. 26 billion refunds in July and August, 2017.

PTI’s views on economy are an attempt to sensationalize the public by presenting a very bleak picture of the economy which merely reflects their negative approach to things. They altogether ignored the positive developments during the last four and half years of the present government which have been acknowledged internationally.

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