| GEO Business|
Debt write-off to have serious consequences: Hafeez Shaikh
| Updated at: 1215 PST, Tuesday, November 16, 2010|
ISLAMABAD: Federal Minster for Finance and Economic Affairs, Dr. Abdul Hafeez Shaikh Monday said seeking debt write-off was a serious issue, which would have great consequences on the country’s future.
“Being a sovereign nation we ought to fulfill our commitments,” the finance minister said while addressing Pakistan Development Forum (PDF) session on the second day. Hafeez Shaikh said that most of the foreign debts were obtained from multilateral agencies like International Monetary Fund, World Bank, Asian Development Bank and Islamic Development Bank and Pakistan had made commitments to these institutions while taking the loans.
“Debt write-off has not one dimensional aspect, it is serious issue with great consequences,” the finance minister said adding that seeking loans write-off would also affect raising capital from financial markets.
He said the PDF event was to communicate with the world and to apprise them about the challenges the country was facing in the wake of the worst ever floods the country witnessed, adding the forum was not about getting pledges or debt waivers.
Leading to the path of sustainable economic development, the federal minister stressed the need for eliminating subsidies that help rich more than the poor.
“We have been providing subsidies to Pakistan International Airlines (PIA) and it is not meant for the poor so we will have to do away with the rich-oriented subsidies,” the minister added.
Similarly, subsidy on electricity benefits all-rich and poor-the federal minister said adding that procurement policies have also been benefiting rich farmers rather than the poor ones.
“We have to find good ways to help the poor,” Hafeez Shaikh said adding that the government has already created social safety net to provide cushion to the targeted population of the country.
Shaikh said Pakistan was passing through a defining moment and believes that ultimately its people will have to rise and face the economic challenges, the country was facing.
The Finance Minister gave an overview of the economy to the delegates from about 30 countries, the United Nations, World Bank,International Monetary Fund, Islamic Development Bank and Asian Development Bank.
He said macro economic indicators had gradually started to return to normal, due to a series of macro economic measures taken by the new government adding the foreign exchange reserves swelled to US 17 billion dollars and stock exchange index rose to 12,000 from 6,000 points, but the devastating floods brought the success back to from it all started.
Sheikh said the Council of Common Interests agreed on providing a cash grant of Rs 100,000 for each of the flood affected family; requiring an amount of Rs 160 billion. Of these the government has allocated an amount of Rs 40 billion through a vigorous and transparent program.
He agreed with many of the speakers that called for more tax reforms and said the government was committed to follow fiscal austerity, by freezing expenditures and cutting new ones.
He said the government will also have to lower inflation through lesser borrowing while at the same time generating more revenue through implementing the revised General Sales Tax.
Meanwhile, speaking on the occasion, Secretary Finance, Salman Siddique stressed the need of resource mobilization saying that the government envisages improve tax to GDP ration from existing 9 percent to 12 percent in the medium term and to 15 percent by 2015.
He said that key initiatives of government’s resource mobilization include reformed GST on goods and services in integrated mode, minimized exemptions, domestic zero rating and elimination of special rates.
In addition the key initiative also include harmonization of tax administration by creating Inland Revenue Service, re-introduction for risk based audit and enforcement and customs modernization reforms.
He said that Pakistan was on the path of reform and was looking forward to the continued support from the development partners.
Speaking on the occasion, Governor State Bank of Pakistan, Shahid Hafeez Kardar said that despite weaknesses, monetary policy remained effective in controlling inflation. Kardar said that SBP’s monetary policy aims to strike a delicate balance on inflation containment and maintaining and supporting economic growth.
He said that reforms have been introduced as the Ministry of Finance has piloted and amended SBP Act through the National Assembly adding that it limits government borrowing from SBP to only 10 percent of previous year’s revenues and government is also bound to gradually reduce its current stock of borrowings from SBP (Rs.1355 billion or 65 percent of revenue) in next 5 years.
He said that increased coordination between monetary and fiscal policies is required to achieve mutual and desirable macroeconomic goals through sharing of data and information and regular interaction at the technical and policy level to ensure consistency between monetary and fiscal policies.