DAWN, WASHINGTON, 10th OCTOBER 2013: Finance Minister Ishaq Dar disagreed on Wednesday with the suggestion that pressures on the Pakistani currency could result in higher inflation in the country.
Talking to Pakistani journalists in Washington, Mr Dar said the government had already taken steps to prevent further devaluation.
In its annual report on the world economy, the International Monetary Fund warned on Tuesday that “past currency depreciation and reduced energy subsidies will likely result in higher inflation” in Pakistan.
The IMF also pointed out that Pakistan’s newly elected government had a mandate to tackle large fiscal and external deficits, “which will initially weigh on growth”.
The report, however, noted that reforms in Pakistan’s energy sector, combined with relatively stable worker remittances and agricultural production and support from international and bilateral donors, were expected to support growth over the medium-term.
The finance minister, who is in Washington to attend annual meetings of the World Bank and IMF, said that the Pakistani currency was over-devalued because of market speculations but was now picking up.
Mr Dar pointed out that Pakistan was not the only country to have faced rapid devaluation because of speculations. In India, he noted, recent developments had forced the government to inject $50 billion into the market.
The minister said the government had already formed a team of experts to prevent currency smuggling which also had contributed to a sudden devaluation of the Pakistani rupee.
He disagreed with the suggestion that the country did not have a mechanism to prevent an outflow of dollars. “There are regulations that prevent an individual from taking out more than $10,000. We are now implementing those restrictions.”
Mr Dar said the impression that the IMF was telling the government how to make its policies was “totally wrong”.
“The government, not the IMF, regulates the Pakistani economy,” he said.
The minister said that the government was trying to control fiscal deficit because it was in Pakistan’s interest to do so.
“In the last three years, all micro-economic indicators were showing a negative trend. We are now trying to improve the situation.”
The minister said that the government had set “an aggressive target” for controlling fiscal deficit and pointed out that last year the fiscal deficit was recorded at 8.8 per cent and the government reduced it to 8.2 per cent. “Our goal is to bring it down to 4 per cent.”
He said that in the last 14 years, public debt increased from Rs3 trillion to Rs4.5 trillion, which was 63.5 per cent of the GDP. “This is against the fiscal responsibility act. It should not go beyond 60 per cent. We want to bring it down to 58 per cent.”
Mr Dar said that in 1999, the tax to GDP ratio was 14 per cent but was now reduced to 8 per cent. “We plan to take it back to 14 per cent.”
The government, he said, had issued 30,000 notices to people who were living beyond their declared means but were not paying taxes.
The minister said the government also was focusing on austerity, cutting down expenses on all fronts.
He rejected IMF’s suggestion that curbing fiscal deficit could slow growth. The government, he said, had increased, not decreased the development budget, setting aside Rs540 billion for this purpose. “This will prevent growth contraction,” he added.
He said the government also had provided protection to the poor, by expanding the social security network.