Minister of Finance was upbeat on Pakistan’s growth performance for 2018 as real GDP grew by 5.8%. This growth is an outcome of combination of factors as she elaborated i.e. good performance of both agriculture and industry. Notable has been the rise in contribution of services sector over the years to over 59% in GDP. Growth has been further driven by rising aggregate demand as consumption and investment were quite strong.
Of concern however is the build up of twin fiscal and external deficits that has complicated effective macroeconomic management. Interim Government is taking steps within its limited mandate to push for stability, however interim Government has no intention to seek IMF financial assistance for the country. Current trends however underscore significance of short term stabilization program, but to ensure macroeconomic sustainability it needs to be complimented by long term structural reforms. Interim Government is undertaking the necessary diagnostics of the situation and analysis which hopefully will serve as useful input for incoming Government to take appropriate decisions and steps.
The caretaker minister emphasized that country needs extensive economic policy and institutional reforms to ensure growth and stabilization are well sequenced.
Two key priorities, critical for long term stability and development for Pakistan ought to be domestic resource mobilization and a strong export diversification drive which will help resolve country’s domestic and external vulnerabilities in most effective manner.
Pakistan can ill-afford to deploy its foreign exchange reserves regularly for imports — imports are needed but need to be accompanied by high export revenues or foreign flows. Our immediate challenge remains the external current account deficit that in 2018 reached its highest ever level — this calls for aggressive and pragmatic interventions to handle the situation.
She underscored that we all need to work harder to ensure broadening of tax base and public compliance with tax regime. Among others this requires careful understanding of tax policy issues as currently our tax system remains narrow, dependent on indirect taxes with income tax barely being collected from 1.4 million people. While fiscal decentralization has been a good move, it has however complicated resource and expenditure management and calls for adoption of more coordination and coherence in policies to limit distortions and negative impact — sales tax on services is one example where harmonized structure would be beneficial.
She encouraged PSX to develop a capital market road map as it has huge potential to contribute to domestic resource mobilization by enhancing the breadth and depth of debt and equity markets. Among others, a vibrant stock market is critical to enhance investor confidence too to bring in more foreign flows.
Underscoring country’s strong economic potential she encouraged businesses to reflect on how to strategize industrial diversification and generate surpluses for enhancing export capacities which is critical for stabilizing the country’s external account that often faces vulnerabilities and threatens country’s macroeconomic stability and impacts its growth path.
She acknowledged the role of Pakistan Stock Exchange in economic development by mobilizing savings for investment which in turn help in yielding higher growth in all sectors of the economy.