The government does not intend to provide support to the exports of manufactured goods, including the value-added textiles, at least not in the immediate future. “There is no provision for this in the budget for the current financial year,” Shaukat Tarin, the Prime Minister’s Advisor on Finance, told Dawn in Islamabad last week.

The exporters of the manufactured goods, especially value-added textiles, etc, have been demanding cash relief for the last five months since the abolition of the Research & Development subsidy in the current.

The Panel of Economists, which drafted the country’s macroeconomic stabilisation programme, also has recommended to the government to give rebate to the value-added textiles and emerging exports to mitigate the pain of increasing cost of doing business spiked by recent cuts in the energy subsidies and hikes in the interest rates.

Tarin acknowledges that the dice is loaded against manufacturing because of the economic slowdown as the government stabilises the economy and corrects the financial imbalances under the oversight of the IMF.

The slowing global demand on the back of international financial crisis and credit crunch too is making the manufacturers cut their output and lay off workers.

The large-scale manufacturing showed negative growth during the first quarter to September of the current year. Many manufacturers — for example car makers, garment producers, and so on — have already cut jobs. Industrial closures and massive retrenchments are feared in the near to medium-term as sales drop and margins erode during stabilisation period.

Tarin, however, promises to sit with all the stakeholders and devise policies with their help to support the production sector — manufacturing and agriculture — for long-term sustainable growth. poverty.

“We will make rolling plans for 12 quarters for all the sectors in consultation with the stakeholders. These plans will be living documents and reviewed and updated every quarter for next 12 quarters,” the advisor says.

The manufacturers argue that the government’s tight monetary and fiscal policies — interest rate hikes, elimination of energy subsidies, and abolition of cash support for textile and other exports — at a time when the global economy was slowing and governments cutting interest rates and injecting liquidity in the economies to boost the demand — are partly, if not fully, responsible for the declining sales.

Tarin expects economic stabilisation to help cut fiscal deficit to three per cent and current account gap to 3.5 to 4.5 per cent from above eight per cent of the gross domestic product (GDP). The headline inflation is anticipated to decline below 10 per cent from existing 25 per cent as the country’s deteriorating balance-sheet improves.

But he acknowledges that growth is going to slow down as the country cools down the economy and tries to curb the runaway inflation, hitting the industry hard.

“Growth rate will suffer as we cool down the overheated economy and crack up interest rates to curb domestic demand and curtail inflation. Business will suffer —the large-scale manufacturing has already shown negative growth — and unemployment rise,” he says.

The IMF and others have projected the economy to slow down below 3.5 per cent this year. But the advisor says the GDP will grow at 4.5 per cent this year, down by 1.3 per cent from last year’s 5.8 per cent.

“We have a choice between slowing GDP growth for a couple of years and hyperinflation and negative growth for many years,” Tarin says. Both Tarin and central bank governor Dr Shamshad Akhtar have repeatedly hinted that the interest rates, already peaking to decade high of 15 per cent, could again be hiked in January unless inflation showed signs of declining during November and December.

“The rate should have been hiked by five per cent to match inflation. But we raised it only by two per cent,” the country’ top finance manager says.

The industrial and economic slowdown is also going to affect government tax revenues, most experts believe.

But Tarin is hopeful of containing the fiscal deficit to around four per cent at the end of this fiscal as the government has already reduced energy subsidies and drastically slashed the development budget. Moreover, he says, the government is committed to raise the tax to GDP ratio to 10.2 per cent during this year by “improving tax administration and collection”. He rules out increase in income tax and general sales tax but says tariffs for non-essential imports will be boosted.

Thus, the savings on account of subsidies and development spending and better tax collection would offset the possible impact of economic slowdown on the government revenues.

Further, Tarin is confident that the assistance coming from multilateral and bilateral lenders would help largely improve the situation by the end of this month.

According to the advisor, Pakistan’s total needs of foreign-currency loans are around $21-22 billion over the next two years to June 2010. The IMF has committed $7.6 billion — it has already disbursed $3.2 billion, shoring up the foreign exchange reserves to above $9 billion, but the release of the remainder is subject to quarterly review of the economy and hinges on progress made on the conditions attached to the IMF facility.

Another $5-6 billion have been committed by other international finance institutions (IFIs) like the World Bank, the Asian Development Bank and the International Islamic Development Bank, and the European Union. “The rest of the money will come from the Friends of Pakistan group. We’ve firm commitments from the IFIs,” Tarin says.

The advisor hints at massive rationalisation of development spending as part of money saving plan but promises to protect the projects related to the social sector and infrastructure. He, however, conveniently ignores the part of the question concerning cuts in non-development expenditure of the government, which has doubled in seven years.

On enhancing agriculture tax and bringing real estate and capital gains on stocks into tax net, he says one-third of the economy was not paying taxes that could yield up to Rs600 billion in government revenues. He wouldn’t say as to when does he plans to tax these sectors. But he says “agriculture will be taxed only after it becomes profitable”.