The budget presentation on the floor of a friendly parliament was easy for the mild-mannered businessman-turned-politician from Karachi Dr Miftah Ismail, in his capacity as a finance minister of Pakistan for the second time. Dr Ismail, 57, a PhD in economics from Wharton School, UPenn, worked in the International Monetary Fund (IMF) in the early 1990s before returning to Pakistan to join his family business.

Eleven years back he entered politics and joined the PML-N. He was finance minister earlier in the cabinet of former prime minister Shahid Khaqan Abbasi who assumed office after Nawaz Sharif for nine months (August 2017 to May 2018) in PML-N’s tenure.

The budget that was deemed balanced by most reviewers, surprised the majority pleasantly. People were expecting perhaps a harsher one or at best a routine exercise. Many on either side of the political fence found Finance Minister Dr Ismail’s stance on the economy refreshingly sensible though others found it to be unrealistically optimistic based on rosy assumptions.

For this exclusive interview, questions were mailed to which Dr Ismail responded via voicemail. The edited version of the interview is reproduced here:

Easily achieved growth rates make rich Pakistanis richer and trigger the balance-of-payments crisis

Q. Will you be able to sell this budget to the IMF? When do you expect the IMF programme to revive?

A. By late June we should be able to sign the IMF staff-level agreement. I hope that this budget, with some additions/tweaking, will be acceptable to the Fund as long we are resolute in making sure that we don’t continue with subsidies on diesel and petrol and go ahead with positive taxation for which we have set ambitious targets in the budget.

Q. Both 5 per cent GDP growth and 11.5pc inflation targets appear unrealistic. Please comment.

A. It is difficult to precisely predict the inflation rate given that it depends on the monetary policy that the governor of the State Bank (SBP) decides. Right now SBP is pursuing a tight monetary policy in tandem with constricting fiscal policy. A lot, however, depends on what happens to international oil prices, edible oil prices, wheat prices, etc. Right now it is a very challenging environment so we might overshoot the inflation target or undershoot the GDP growth target. I think the targets for deficit, revenue and expenditure are robust and as long as we can keep those on track the inflation would be kept in check with a reasonable growth rate.

Q. There is a clear attempt in the budget to provide relief to the salaried class and low-income families but the impact of pushing up the value of taxable income and other measures will be neutralised by hyperinflation. Do you think you will be able to arrest the slide in the living standard in the year ahead?

A. This is not the first time that we have tried to give relief to the working masses and the salaried class; we have done it before as well. Unfortunately, those policies were reversed by the PTI government. It was the surest way to bring more people into the tax net.

We have also taxed shopkeepers (around 2.5 million) to bring them into the tax net and we would like to set rules to bring car dealers, jewellers, high-end watch sellers etc. into the net. We will ensure that the Federal Board of Revenue does not bother shopkeepers once they pay their fixed taxes.

Q. When 5.9pc growth failed to deliver prosperity and reduce poverty and unemployment significantly how will a slower growth rate deliver on poverty reduction and higher employment?

A. Getting growth is not that big a problem in Pakistan. Our playbook for growth has been to make rich Pakistanis richer who spend primarily on imported items and often direct their investments overseas. By the time the trickle-down effect starts the balance of payment crisis kicks in to upset the apple cart. So the poor remain on the receiving end excluded from the benefits of growth but included in sharing the burden of consolidation policies. We are trying to change this. We are trying to ignite the economic engine not by making the rich richer but by empowering the poor economically who consume local production. It will hopefully make growth inclusive and sustainable.

Q. Is there anything in the budget to directly suppress the petroleum products consumption to contain the oil import bill?

A. The best way to contain petroleum consumption is to increase its price by removing the subsidy and taxing it. While speculation will continue, the decline in consumption will take the pressure off the rupee. Once the rupee strengthens, inflation will also come down.

Q. Did the government consider requesting the defence services to chop avoidable spending, keeping the financial crunch in view?

A. The defence budget has grown less than the rate of inflation so our defence partners have chipped in their share of sacrifice.

Q. Where do you see the China-Pakistan Economic Corridor (CPEC) by the end of your tenure?

R. One year is not a long time but Pakistan needs to revive CPEC. The PTI government put a hold on this key project disappointing our Chinese friends who had taken a chance on Pakistan and invested when no other country was willing to invest. Hopefully, we will bring in Chinese investment, especially in economic zones. CPEC shall be thriving and back on track by the time we leave.

The author can be reached at
asubohi@hotmail.com

Published in Dawn, The Business and Finance Weekly, June 13th, 2022