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Govt moves to ‘cool down’ an ‘over heating’ economy

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Govt moves to ‘cool down’ an ‘over heating’ economy
Finance Minister Tarin announces restrictive measures t slow down growth
Shahbaz Rana| September 23, 2021

finance minister shaukat tarin photo express

Finance Minister Shaukat Tarin. PHOTO: EXPRESS

Finance Minister Shaukat Tarin announced on Wednesday to take restrictive measures to “cool down” an “over heating” economy, marking the beginning of reversal of expansionary fiscal policies after external sector vulnerabilities exposed sooner than expected.
“It has been decided to introduce a 100% cash margin requirement for imports and impose regulatory duties to curb imports of non-essential items,” Tarin told a press conference – his second in less than 10 days to respond to increasing criticism over higher inflation.
“If [the new] measures are not taken, the economy could grow at more than 5% rate and this is the time to control the growth rate, the finance minister told the reporters, while explaining the reasons behind taking these measures.
“My concern is that the economy may overheat and there could be exchange rate related problems if the GDP growth rate exceeds above 5% annually,” he added, while responding to a question from The Express Tribune.
Before the budget, Tarin had been cautioned about the adverse impact of expansionary fiscal policies but the minister at that time had opined that the economy can sustain over 6% growth rate, finance ministry sources said.
Introduction of cash margins –where the importers are required to deposit cash in dollars in advance—and regulatory duties are considered import restrictive measures that are usually discouraged by the International Monetary Fund (IMF).
The government decided to take these steps after the two-month import bill exceeded $12 billion and the central bank called for urgent measures. The State Bank of Pakistan (SBP) has already increased the discount rate by 0.25% while also signalling a further increase at an appropriate time.
The SBP policy statement also pointed out things that the federal government has to do to minimise threats to external sector stability.
The message in the central bank’s monetary policy statement was that so far the reliance was only on exchange rate too and there was also a need to use monetary policy and fiscal policy tools “to cool down” the economy, said the finance minister.
“The fiscal side acceleration needs to be reduced to lower the heat and we are now closely monitoring the fiscal policy,” Tarin added. He said that fiscal operations were in line with the projections during the current fiscal year but the finance ministry was monitoring the situation.


Doubtful petrol prices comparison
Tarin and Special Assistant to Prime Minister on National Food Security Jamshed Cheema claimed during the press conference that petrol prices were the cheapest in Pakistan compared to the region. Compared with Rs123 per litre price in Pakistan, “the petrol price in India is 250 rupees per litre and 198 in Bangladesh”, Tarin said.
“The per-litre petrol price in Mumbai is Rs105.92,” an Indian journalist, who is a member of the South Asian Society for Economic Reporters (SASER), said. The SASER is an association for business and economic reporters of South Asia.
“It’s 90 taka per litre in Bangladesh,” said another SASER member journalist from Bangladesh. One litre petrol price is 157 rupees in Sri Lanka , according to a SASER member from Sri Lanka. The Nepalese SASER member said that the petrol was being sold at 129 in local rupee.
In order to avoid growing criticism, the government gave controversial figures by translating regional countries’ petrol prices by applying rupee-dollar parity. The Pakistani rupee closed at Rs168.68 to a dollar on Wednesday, compared with around Rs74 to a dollar Indian price. Even Afghani rupee is far stronger than Pakistani rupee.
The finance minister said that it has also been decided to slash taxes on edible oil to reduce their prices by Rs45 to Rs50 per kg. “The government will offer direct food subsidies to 40 to 42% people on the edible items,” he said.
Sugar will be available at Rs89.75 per kg across the country and wheat flour at Rs55 per kg for everyone and Rs43 for the poor people, said Cheema.
While commenting on the IMF talks, Tarin said that the power sector will be an issue and “we will try to find a solution to that”. He added: “There is no prior action on the power sector and everything will be discussed during these talks.” He again said that increasing tariffs was not a solution to the power sector’s problems.
The minister said that the government has shown progress in the revenue collection during the current fiscal year and it would expand the tax base by using technology. “Pakistan and the IMF are expected to begin programme review talks from October 4.”
Responding to a question about his six months ministerial term that is going to end on October 15th, the finance minister said, “I am not going anywhere and I have trust in the prime minister’s promise of getting me elected as senator.”
However, Imran Khan has not yet announced a schedule for his election, as it will require at least 23 days from the point of getting a seat vacated by a sitting senator and electing a new senator in his place.

@Desprado the most laughed at member here is proven right once again

@Patriot forever @AZ1 @Path-Finder @Del @Dual Wielder @ziaulislam @Mav3rick @farok84
 

S.Y.A

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He again said that increasing tariffs was not a solution to the power sector’s problems.
increasing tariff should just be a small part of it. other part should be to review and renegotiate agreements with IPPs, delink payments from dollars, revise the promised rate of return (but that would require some serious hardwork, lobbying and mental capacity, which unfortunately our ministers and civil service lack).

and, also, reduce line losses in form of kundas. cut off electricity to squatter settlements protected by political overlords. Heavily incentivize solar power (one way to do it is to buy back electricity at the rate provided to consumer, which isnt the case right now, its the consumers who pay for all infrastructure, poles, wiring, meters etc, and yet they are the ones getting shat on).
@Desprado the most laughed at member here is proven right once again
This may come as a shock for many members.
 

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review and renegotiate agreements with IPPs, delink payments from dollars, revise the promised rate of return
Why would they do that? Companies that initially got 20 percent dollar returns are not going to back off from their agreements as they must pay the money in commissions to previous govt mafia who signed the contracts on behalf of the people
 

Desprado

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USD is rising due to shortage of dollar. Why there is shortage of dollar since May late?

1) Perception of imports has rise due to giving subsidy on imports by FM

2) Lack of FDI due to unstable currency and less 200 million dollar FDI in 2 months of this FY.

3) Market is aggressively is buying dollar from local exchange markets

4) Outflows investment due to delay of IMF program

5) ADB, WB and AIIB has stopped Pakistan funding due to delay in IMF

6) 2.3 billion dollar CAD in just 2 months ,however, Shaukat Tarin promised NA, Senate, IMF and PM that our CAD will be 2.3 billion whole FY of 2022 and it also mentioned in his Budget book if you think i am lying.

7) Government uptake has rising to 2018 levels.

8) Export as not increased at according to Shaukat tarin and he saying GDP of Export was better in previous FY

9) Luxury items were giving concession, which created shortage of dollars.

10) Negative interest and forced it too long that it created artifial demand of imports.


Positive interest rate always helps to reduce imports and improve import ,however, our PM was desperate for growth but the growth honeymoon is over because it will only create hyper inflation nothing more.

Reza Baqir has hinted that Pakistan survivial depends on IMF program.

The fight i said between Tarin and Baqir has started i know Baqir will win and tarin will be out.

Why does it look like Hafeez Shaikh may make a comeback?
:cheesy:
Most likely and realisticly Asad Umar will be made FM even if IMF likes it or not because Imran Khan will only care how to control CAD and rest of the worry will dealt later.
 

S.Y.A

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Why would they do that? Companies that initially got 20 percent dollar returns are not going to back off from their agreements as they must pay the money in commissions to previous govt mafia who signed the contracts on behalf of the people
...and if someone decides to put those people or trial or recover money, then everyone goes up in arms. even those within PTI, as most of them joined to do the exact same thing. none of our politicians are in it for the country, all of them want seats and to be ministers for power and showbaazi. when their intentions are screwed up right from the start, one cannot expect good governance from them.
Luxury items were giving concession, which created shortage of dollars.
Unfortunately Pakistan has no alternative for a lot of those things, like electronics for example. pharma companies can forced to produce in house rather than importing and re-packaging, but then local suppliers of raw materials provide sub-par stuff to defraud the buyer. Chocolates, perfumes, value added dairy goods should be banned outright, or very very heavily taxed, and incentives introduced to make them in house.
 
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hydrabadi_arab

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USD is rising due to shortage of dollar. Why there is shortage of dollar since May late?
Fan of Dollar Dar shouldnt talk like that. Dar left Pakistan 2018 with CAD of $20b and $6b in reserves. Now govt in just 1 month have course corrected and every PTI supporter who know thing or two about our past was asking for same. Now lets wait few months to see where CAD stand.
 

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I'm not sure what the problem is here. Weak economies like ours need to correct themselves using policy intruments with the least fallout. If anything, this is actually a sign that the govt is invested fully into improving the economy for sustainable long term growth instead of putting in a short sprint of above 5% GDP growth like the Nooras and then winning the election.

The economy is overheating because the concessions made to kick start activity post corona led to sharper recovery then initially estimated. These are actually good signs instead of what this @Desprado - Maryam's buddy is spewing without any idea of economics...
 

Desprado

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Fan of Dollar Dar shouldnt talk like that. Dar left Pakistan 2018 with CAD of $20b and $6b in reserves. Now govt in just 1 month have course corrected and every PTI supporter who know thing or two about our past was asking for same. Now lets wait few months to see where CAD stand.
PTI and PMLN both same coin no difference.

PMLN forced negative interest rate PTI did the same, which lead to CAD

PMLN overvalued the currency too much PTI is doing the same REER right now is at 95 and it is undervalue and still import are increasing and export are flat no increase at all.

Hired a person who is failed banker, did a fraud in 2009 with PPP and IMF and did a fraud again with Senate, IMF, PM and NA that our CAD will be only 2.3 billion this whole FY and signed it to IMF.

PTI used 5.8 billion dollar in 4 years and 1.2 billion dollar in last 3 months to control PKR value against dollar due to Shaukat Tarin request.


Among them all the best is PPP because they increased export to 31 billion dollar in 2011 and never forced Interest rate to negative due to when PPP left the CAD in 2013 was only 2.5 billion dollar.

Externally PPP was better than PMLN and PTI.
 
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hydrabadi_arab

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What is over heating of economy? Pakistan set target of 4.8% growth rate but right now its going well above that. Problem is growth is import led and exports are not growing at the same rate. Hence the need to cool down.

No point of 8% GDP growth if isn't sustainable. Thank god stupid Nawaz era is over and we finally have people with long term thinking in charge.
 

Desprado

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What is over heating of economy? Pakistan set target of 4.8% growth rate but right now its going well above that. Problem is growth is import led and exports are not growing at the same rate. Hence the need to cool down.

No point of 8% GDP growth if isn't sustainable. Thank god stupid Nawaz era is over and we finally have people with long term thinking in charge.
Delayed IMF program, lack of FDI, ADB, WB and AIIB has stopped giving loan to Pakistan due imf program delayed , negative government uptake same level as 2018, created shortage of dollar due to conession on luxury and cars imports, negative interest rate, investment outflows, CAD of 2.3 billion dollar in 2 months ,which was suppose to be in 1 whole year according to budget 2021-2022, no export growth and relied on import for growth opposite of budget 2021-2022.
 

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