Miftah Ismail, Federal Minister of Finance. — AFP/File
  • Miftah says reprieve after successful IMF deal marred by devastating floods.
  • Pakistan could have gone bankrupt if the government had not opted for the agreement with the IMF
  • Said that Pakistan’s foreign exchange requirements for the current financial year would hopefully be met through institutional loans.

Federal Finance Minister Miftah Ismail said he was not in favor of opening letters of credit (LC) for imports, as he admitted that the dollar always remains under such pressure.

Addressing members of the Lahore Chamber of Commerce and Industry, Miftah said the country could have gone bankrupt had the government not opted for the IMF deal. He added that things are looking up now.

In the same breath, Miftah said a reprieve from the success of the IMF deal was marred by devastating floods that affected more than 30% of the population.

He said exchange the country’s needs for the current fiscal year would hopefully be met through institutional loans. However, the currency crisis would not be over until we managed to increase our exports. He said our exports were pathetically low right now compared to imports, which was worrying. “We invested more in consumer projects like wedding halls and shopping malls than in industries to create an exportable surplus,” The news reported it as saying.

Miftah said the tax-to-GDP ratio stood at 9% of GDP compared to 11.5% in 2018 when the PMLN left power. As a businessman, he was not happy to raise taxes but lamented that there was no way out. He said the last PMLN government had added 12,000 MW of electricity to the country, but it was not being used in the manufacturing industry to create jobs.

“We have the lowest tax-to-GDP ratio in the region as well as the lowest national savings rates. Against a savings rate of 12% in Pakistan, it is 31% in India and 32% in Bangladesh. He said that even Sri Lanka had a savings rate of 18%.

The minister said that after accounting for remittances of $30 billion and exports of about $31 billion, Pakistan still has a current account deficit of about $18 billion while our imports soared to $80 billion.

There would be no currency crisis if exports reached 15% of Pakistan’s GDP, which is the country’s real potential, he said.

Miftah went on to say that electricity rates were high because our transmission and distribution losses exceeded 19%. Moreover, the government failed to collect 10% of the bills generated by electricity distribution companies each month. He said an exceptional increase in the fuels used to generate electricity had increased its cost.

“World oil prices had risen to around $100 a barrel. RLNG, which we were buying at 13% of the cost of Brent oil, shot up three times. A shipment of LNG was $134 million, now it costs three times as much,” he said, adding that coal has never been above $90 a ton, but these days the price is above $300 a ton.

He said a one degree rise in temperature in Lahore increased the electricity demand by 800 MW. During the May heat spike, the government was forced to engage all idle power plants, regardless of the cost of generation. He said the Guddu Power Station during the summer peak produced electricity at Rs 59 per unit.

“Nevertheless, we had to resort to five hours of load shedding, adding that the electricity tariffs had been increased according to the cost of electricity production. This is in line with the agreement we had signed with the IMF” , did he declare.

He said the Prime Minister’s subsidy to consumers of less than 300 units would be clawed back through higher taxation on sugar and tobacco.

The finance minister said that Pakistan under the PTI was selling petrol and diesel at far below cost. He said the Saudi finance minister told him that Pakistan was selling diesel at a lower price than even the kingdom. Similarly, the retail price of diesel in the UAE was higher than in Pakistan. He said it was illogical and destructive to the economy to sell oil below landed price. He said that currently the government earns Rs 37.5 per liter on gasoline sales and Rs 7.50 on diesel. As part of the agreement with the IMF, he said the levy on diesel should be Rs 15.

Miftah finally promised businessmen to alleviate their letter of credit problems in a short period of time. The broadcasts had been delayed due to the devastating floods in Pakistan. Bursting into tears, he said the plight of those affected was beyond comprehension.

“Millions of people live without shelter. More than a million head of cattle perished in the floods,” the minister said.

He said 600,000 pregnant women live in the open and give birth to 2,500 children a day without proper care. He called on businessmen to make generous donations as the government alone could not cope with the situation.