ISLAMABAD: With inflation at about 29 per cent, Caretaker Finance Minister Dr Shamshad Akhtar, in her departure note, is leaving behind a piece of advice to the incoming government to stay the course, be prudent and reach immediately an agreement with the International Monetary Fund (IMF) for a new medium-term programme to anchor difficult reforms.

Claiming a series of gains over the six-month tenure of the caretaker administration, the outgoing minister said these required to be sustained with the completion of the last IMF review by the new government. “Perhaps more important is that the new government reach an early agreement with the IMF staff on a new medium-term facility, providing an anchor to carry out the difficult reforms”, she wrote in a rare note as part of the Monthly Economic Update & Outlook for (February 2024) of the Ministry of Finance.

“To achieve this, the new government must take forward critical reforms on the FBR restructuring, privatisation of the loss-making SOEs including PIA, and the implementation of the SOE policy for improved governance and financial performance”, she added.

Dr Akhtar said the economic instability had faded as a result of measures adopted over the past six months, restored market confidence and picked up economic activity and the expectations from the new government were that “a vibrant strategy and vision would help revive the economy and build on the hard-earned gains”. Last few months measures have restored market confidence and led to a pick-up in economic activity.

Unsustainable debt, unprecedented interest rates, weak revenue collection remain key challenges for new govt

She emphasised that at the heart of the economic challenges facing Pakistan today was the unsustainable public debt position and the country had been in breach of the Fiscal Responsibility & Debt Limitation Act (FRDL) since 2013. The government’s ability to service the public debt liabilities is hampered by weak tax collection, rising losses of SOEs and the highest interest rates since 1972.

The minister said that GDP growth had accelerated to 2.1pc in the first quarter of FY24, after two consecutive quarters of negative growth. The growth was broadbased with the agriculture sector posting 5pc growth and manufacturing activity registering 2.5pc growth. In particular, the removal of the import ban and other import restrictions has eased supply constraints, leading to a pick-up in economic activity.

Giving a stock of steps over the past six months to tackle challenges, she said the unproductive expenditures had been reduced coupled with a boost to tax and non-tax income, thus running a primary surplus of Rs1.5 trillion (1.4pc of GDP) in the first half of the fiscal year against IMF target of 0.5pc of GDP. “Difficult and unpopular measures including a reduction in the subsidy bill on power and gas through timely implementation of quarterly tariffs helped improve primary account”, she said and added that no supplementary grants were issued and PSDP projects of provincial domain were transferred to provincial annual development plans (ADPs).

On the revenue side, the FBR Tax collection grew by 30pc in the first seven months as domestic taxes increased by 40pc on the back of a “rebound in economic activity and rise in profitability of companies including Banks, Oil & Gas, and the manufacturing industry”. The improvement in fiscal position helped reduce accumulation of public debt and net domestic borrowing dropped 67pc to Rs1.9tr, from Rs5.8tr in the preceding period.

Published in Dawn, March 1st, 2024