Pakistan may attain 5-8 percent growth: IMF official

[ameer219]

Pakistan may attain 5-8 percent growth: IMF official
AHMED MUKHTAR

ISLAMABAD (February 25 2010): The biggest challenge Pakistan facing now is to improve growth rate to over 5 percent on sustained basis by overcoming structural challenges, says an IMF official. "There is no reason Pakistan can not grow over five percent on sustained basis by increasing exports and investments; all opportunities are there", said Masood Ahmed, IMF Director of Middle Eastern and Central Asian Division, in an exclusive interview with Business Recorder.

"To do so, Pakistan has to address impediments of increasing investment and to provide infrastructure, educated and skilled human capital, improve business environment, and level of governance", he said. "But in three to five years Pakistan, strongly growing on the structural reforms path, can also catch a growth rate of 8 percent, equal to its Asian rivals. That is also an average growth rate of Asia next year," he added.

Masood called for national consensus among all political parties on structural reforms so that in future these reforms should stay on course, and growth pattern should not be that much disturbed, and the government should show more political will in implementing these reforms. "Pakistan needs tough political decision to take on reforming its commercial entities, cutting its losses", Masood said.

Good macroeconomic practices to ensure strong pubic finances and competitive exchange rate to bolster high growth are also essential, he added. Pakistan grew 2 percent last year; has estimated to grow at 3 percent this year; and the Fund forecast to get to 4 percent next year. Unlike previous years' growth, based on consumption, future growth should be based on exports and investments.

In a scenario of growing global growth at 4 percent from negative 1 percent last year, exports demand would grow and competitive price advantage would support local exporters, making up for modest growth this year. "But, this is not enough, and Pakistan can achieve 8 percent of growth in coming years if structural reforms are really undertaken," the IMF Director said.

Pakistan government can save up to 8.5 percent of GDP to deploy from increasing tax revenue, and reduce losses of public sector inefficient enterprises. "Resources that are currently wasted in the loss, making public enterprises and taxes that are collecting taxes that are not collected, making public spending more efficient are estimated by Finance Ministry is over 8 percent of GDP which are almost $12 billion", says Masood, quoting Finance Ministry reports.

These resources could be deployed to finance the much-needed infrastructure, reliable electricity provision, better health and education for millions of Pakistanis, he added. Among other challenges, international oil prices can augment again next year posing balance of payments problems and inflation which had once come down to 9 percent. He said the government should also be reducing fiscal deficit, which is around 5 percent this year, that would crowed out private sector borrowing from banking sector.

"Inflation, once reduced to around 9 percent, is now again increasing, and rebounding at 13 percent, which is very harmful for the poor segment of the society. This is the biggest help for the poor class; this also helps increase investment, that ultimately helps reducing poverty," Masood said. He said help from donors, like Tokyo pledges, are slow, and IMF urges the donors to come up and support Pakistan, he added.

Masood said that government borrowing was ultimately turning into higher interest rate payments and, with defence spending increasing, other modes of government spending are almost negligible. "This makes the shape of budget very lopsided, and needs careful considerations for future outlook," he added. Exchange rate should stay as per the fundamental rather than to keep it artificially unchanged for a certain period as was done in the past which would lead to a sudden jerk, Masood said


Business Recorder [Pakistan's First Financial Daily]

 

[Kompromat]

too good to believe.

 

[Valiant_Soul]

What is the current GDP growth?

 

[SMC]

3.5% I believe. All we need is semi-stability and some lull in suicide bombings and we will be on our way.

 

[Valiant_Soul]

Indeed, there can be no work if there is so much security concerns. Wish you luck, may you prosper!

 

[LCA Tejas]

Thats a wonderful thing... Good luck pakistan... Kik the A$$ of Taliban and Prosper with good economic growth, wishes from India

 

[sparklingway]

Good news to say the least.

 

[ajpirzada]

all depends on who will be our next finance minister. if he is some political guy then take this news as a daydream. only an apolitical person can force the gov to consume this hard economic pill of structural reforms. tarin was doin great in this regard.

 

[ek_indian]

Although the task seems non-achievable. Please do not get me wrong. I believe jumping from 3.5 (provided by SMC though no source was given) to even 5% is not-so-easy task speacially when you are also dealing with a war.

But with proper planning and execution, the rate could well be increased to 4% which is more realistic. Anyways my best wishes.

 

[bomberman]

What is the current GDP growth?

1.2%

to reach 5-8% it takes decades!

 

[jarnee]

Good news definitely, see democracy may stink, but it pays. I believe this is bec of democratic govt , you are having investments and i read abt your service sector growth, which is promising.
So to ppl of Pakistan, you may change the government but do not change the governance.
If Pakistan becomes selfish about its prosperity and her poor people stop thinking they have nothing to loose, India is still to benefit.

 

[araz]

Pakistan may attain 5-8 percent growth: IMF official
AHMED MUKHTAR

ISLAMABAD (February 25 2010): The biggest challenge Pakistan facing now is to improve growth rate to over 5 percent on sustained basis by overcoming structural challenges, says an IMF official. "There is no reason Pakistan can not grow over five percent on sustained basis by increasing exports and investments; all opportunities are there", said Masood Ahmed, IMF Director of Middle Eastern and Central Asian Division, in an exclusive interview with Business Recorder.

"To do so, Pakistan has to address impediments of increasing investment and to provide infrastructure, educated and skilled human capital, improve business environment, and level of governance", he said. "But in three to five years Pakistan, strongly growing on the structural reforms path, can also catch a growth rate of 8 percent, equal to its Asian rivals. That is also an average growth rate of Asia next year," he added.

Masood called for national consensus among all political parties on structural reforms so that in future these reforms should stay on course, and growth pattern should not be that much disturbed, and the government should show more political will in implementing these reforms. "Pakistan needs tough political decision to take on reforming its commercial entities, cutting its losses", Masood said.

Good macroeconomic practices to ensure strong pubic finances and competitive exchange rate to bolster high growth are also essential, he added. Pakistan grew 2 percent last year; has estimated to grow at 3 percent this year; and the Fund forecast to get to 4 percent next year. Unlike previous years' growth, based on consumption, future growth should be based on exports and investments.

In a scenario of growing global growth at 4 percent from negative 1 percent last year, exports demand would grow and competitive price advantage would support local exporters, making up for modest growth this year. "But, this is not enough, and Pakistan can achieve 8 percent of growth in coming years if structural reforms are really undertaken," the IMF Director said.

Pakistan government can save up to 8.5 percent of GDP to deploy from increasing tax revenue, and reduce losses of public sector inefficient enterprises. "Resources that are currently wasted in the loss, making public enterprises and taxes that are collecting taxes that are not collected, making public spending more efficient are estimated by Finance Ministry is over 8 percent of GDP which are almost $12 billion", says Masood, quoting Finance Ministry reports.

These resources could be deployed to finance the much-needed infrastructure, reliable electricity provision, better health and education for millions of Pakistanis, he added. Among other challenges, international oil prices can augment again next year posing balance of payments problems and inflation which had once come down to 9 percent. He said the government should also be reducing fiscal deficit, which is around 5 percent this year, that would crowed out private sector borrowing from banking sector.

"Inflation, once reduced to around 9 percent, is now again increasing, and rebounding at 13 percent, which is very harmful for the poor segment of the society. This is the biggest help for the poor class; this also helps increase investment, that ultimately helps reducing poverty," Masood said. He said help from donors, like Tokyo pledges, are slow, and IMF urges the donors to come up and support Pakistan, he added.

Masood said that government borrowing was ultimately turning into higher interest rate payments and, with defence spending increasing, other modes of government spending are almost negligible. "This makes the shape of budget very lopsided, and needs careful considerations for future outlook," he added. Exchange rate should stay as per the fundamental rather than to keep it artificially unchanged for a certain period as was done in the past which would lead to a sudden jerk, Masood said


Business Recorder [Pakistan's First Financial Daily]

The problems of lawlessness and lack of energy resources need to be overcome before you will have growth.What does one grow on if there is no energy. People need to realize that these"good tidings" have to be taken with a pinch of salt. Pakistan needs to make comprehensive changes in itspolicies of taxation and gather enough money locally for energy generation, unlike Shortcut Aziz, who sold national assetts to cook up the books.
Araz

 

[DMLA]

non-achievable

I would just like to say a few things!

Pakistan like other south asian countries is presently at a very low base. One look at per capita GDP will bring us all to that conclusion. This shows the huge potential for growth that exists within this region.

IMO, the biggest impediment for pakistan could be another coup. What is required is good governance. As governance improves, economy automatically falls in and becomes the priority! With a democratic setup pakistan should be in a position to create the demand from its political setup to "act right"!

Personally, I don't see any reason why pakistan cannot grow at 8% or even higher. However it would take a few years for the region to calm down and lives to get back to normal. I hope that pakistan grows as growth in south asia is the key to eventually solve all of our problems. It would undoubtedly lead to greater co-operation and bring an end to issues plaguing the region.

all the best!

 

[bomberman]

nations gowth is stick to the infllation rate it should be moderate!

Both india and pakistan suffers high inflation of food price

 

[ajpirzada]

Pakistan's Tarin leaves taxing challenge
By Syed Fazl-e-Haider

KARACHI - The resignation this week of Finance Minister Shaukat Tarin has increased concern about the government's handling of the economy, which is beset by soaring inflation, rising costs of doing business, a depreciating rupee, dwindling foreign investment and the expense of fighting insurgents.

Tarin quit on Tuesday to concentrate, he said, on personal banking interests. He owns a 21% stake in Silkbank, a commercial lender.

"Shaukat Tarin resigned not due to monetary policy differences with the government but because of his family business interests," Business Recorder reported prominent economist and



former finance minister Punjab Shahid Kardar as saying.

Many analysts believe there will be no shift in economic policy under Tarin's replacement. Even so, local businessmen view his decision to go as bad news for the economy as he is viewed as market-friendly. The outgoing minister declined to comment on speculation that his departure was sparked by policy differences with the government. Prime Minister Yusuf Raza Gilani had refused to give Tarin more authority to crack down on tax evasion.
Tarin, a former Citi banker, became the prime minister's finance advisor in October 2008 and finance minister in July 2009. He played a key role in bringing down energy subsidies, helping to meet a vital condition for obtaining an International Monetary Fund (IMF) loan of US$11.3 billion to avert a balance of payments crisis in November 2008.

Shares tumbled on the combined news of Tarin's resignation and the government's decision to impose from July 1, the start of the new fiscal year, a 10% capital gains tax on share deals, higher than the expected 5% tax level. The benchmark Karachi Stock Exchange (KSE) 100-share index plunged 1.3%, on Tuesday and a further 1.5% after the prime minister accepted Tarin's resignation.

"It was pretty difficult for the shaky market to digest the fallout of the two [items] of bad news," Dawn reported analyst Ahsan Mehanti as saying. "July 1 is still far away and anything could happen, but the exit of a market-friendly man at the top of the financial regime was a real loss for investors."

Tarin's departure "has to do with the government once again dragging its feet on a [tax] clampdown", the Financial Times reported, citing an unnamed source close to Tarin. "They just don't understand. You can't allow tax dodgers to go free. This is a massive setback for Pakistan’s economy," the person was reported as saying.

Critics say the country will continue to be under financial stress as the depressed industrial sector, the traditional source of revenue collection, has exhausted its capacity to generate more funds for the government, which has exempted the larger agriculture sector from taxes.

"This is an unusual situation," said Farooq uz-Zaman, chairman of the Association of Builders and Developers of Pakistan (ABAD), according to a report in The News. "It takes time to understand the way of thinking of the person in that key position. Now someone else is coming and definitely it will cause a lot of difficulty."

Possible successors to Tarin include Makhdoom Shahabuddin, an influential politician from the ruling Pakistan People's Party (PPP) and a former junior finance minister; Ishrat Hussain, a former central bank governor and World Bank official; Hafeez Pasha, a former commerce minister who worked for the United Nations Development Program and Nasim Beg, a Karachi-based investment banker, the Financial Times reported.

Tarin, who was elected to the senate on a Sindh "technocrat" seat (ie one of those filled by appointment from parties with a sufficient number of seats in national and provincial assemblies) and has no following in the ruling PPP. He had fallen out of favor with other cabinet members because of his criticism of rental power plants, usually set up to meet short-term emergency requirements, according to a report published in The News. The cost of such plants has been a source of dispute.

Questions about Tarin's legitimacy to become a finance minister had also been raised due to his holding in Silkbank at a time when the lender sought extensions for raising capital to meet regulatory obligations. Tarin said on resigning that he was going help Silkbank to raise capital as it prepared for a rights issue, which he said he would not be able to do as a finance minister.

Inflation is one of the top challenges facing Tarin's successor. The central bank has been pursuing a tight monetary policy for the past three years to rein in rising prices. It cut its key policy rate by 150 basis points to 12.5% last July but kept rates unchanged in its two most recent monetary policy reviews.

Inflationary pressures have grown due to the removal of oil and power subsidies and the government's need for more borrowing from commercial banks to cover its budgetary deficit. The government raised power tariffs in January by 14% and increased gas prices by 18% to help bridge the fiscal deficit.

Inflation gauged by the consumer price index rose to 13.7% in January compared with a year earlier after dipping to 10.5% the previous month. The sensitive price index for the week ending February 18 was up 16.82% from a year earlier, according to the Federal Bureau of Statistics. Analysts predict the upward inflationary trend will remain strong at least through to June.

Present government policies are not sufficient to curb inflation, which is hitting the poorest hardest, according to a recent Pakistan Institute of Development Economics report. Coordinated monetary and fiscal polices are required to control inflation, but the "toothless and pathetic" administration is without any clear-cut policy, according to The News.

The consistent depreciation of the local currency against the greenback is also contributing to inflationary pressures. The rupee, which hit a record low of 85.15 against the US dollar this month, has weakened 1.02% this year after losing 6.17% in 2009. It lost 22.12% in 2008.

Depreciation has added 1,125 billion to the public debt over the past two years, significantly increasing the rupee cost of foreign debt servicing. Total foreign and domestic public debt is at 58.1% of gross domestic product, according to Debt Policy Statement 2009-2010.

Security concerns and the failing economy are deterring inward investment, with foreign direct investment tumbling more than 55% in the six months through January to $1.47 billion, according to the central bank.

This month, US Deputy Treasury Secretary Neal S Wolin reportedly told government officials in Islamabad that providing more loans and finalizing a US deal on a free-trade agreement were linked to Pakistan's economic viability. The US has held back on the release of the Coalition Support Fund (CSF), due to delays in visas being issued to a US audit team.

This adds to the burden on the war-hit economy. The Finance Ministry estimates that expenditure on the "war on terror" was 213 billion rupees this fiscal year, according to a report recently published in Business Recorder. The government has cut the Public Sector Development Program, an important prop for poorer parts of society, to absorb the steep rise in spending related to military operations in the troubled Waziristan tribal areas, where Pakistan borders Afghanistan.

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