ISLAMABAD - The government on Saturday decided to constitute an inter-ministerial committee on tariff rationalization so that tariff policy could be aligned with trade policy leading to improvement in balance of trade.

The committee would comprise members from Ministries of Finance and Commerce, State Bank of Pakistan (SBP) and PIDE. The Committee will submit its recommendations within four weeks time. Finance Minister Ishaq Dar, while chairing a meeting of the Monetary and Fiscal Policies Coordination Board, announced to constitute a committee to control the increasing trade deficit of the country.

Pakistan’s current account deficit widened to $10.64 billion due to fall in exports and remittances during July-May 2017. “The decline in exports is more due to exogenous factors as the decline in exports was also witnessed in other regional countries”, the meeting was informed. 

The Ministry of Commerce informed that trade deficit was registered at $32.58 billion during previous financial year as against $23.9 billion of the proceeding year, showing growth of 36.32 percent. Imports were recorded at historic level of $53.02 billion during the FY17 as against $44.69 billion of the FY16, showing an increase of 18.67 percent. However, the exports registered a decline of 1.63 percent and were recorded at $20.45 billion during previous financial year as compared to $20.79 billion of the preceding year.

Pakistan’s exports have increased to EU countries where it is enjoying GSP Plus unilateral concessions. The negative effects of the exports are bottoming out, and it is expected that exports will improve in coming months. In this regard, the minister for finance stated that to help export proceeds, duty-drawback claims would be honored and assured that claims will be cleared along with sales tax refunds, at the earliest.

Finance minister expressed the need for necessary measure to address the widening current account deficit. He said that the government has already initiated a number of measures for exports enhancement. There is no loadshedding for the industrial sector. The tariffs have been slashed. He stressed to look into the competitiveness aspect and stressed upon a multi-pronged approach at federal, provincial and local level.

In his opening remarks, the minister stated that the macroeconomic indicators are showing a positive trend. GDP has grown this year by 5.3% which is a 10-year high. Foreign exchange reserves are at a comfortable level, tax revenues have increased by 73% over the last four years, credit to private sector has increased by over five times, gas availability has improved, and loadshedding for industry has been eliminated and substantially reduced for commercial and domestic sector.

For the first time the size of the economy has surpassed $300 billion. On average, income of each Pakistani has increased by 22% since fiscal year 2012-13. Per capita income today stands at $1,629 as compared to $1,334 four years ago. Inflation was on average 12% between 2008-13. The inflation has been contained at 4.16% much below the target of 6%. Policy rate of SBP has come down from 9.5% in June 2013 to the current 45 year low of 5.75%.

As per the party manifesto of PML (N), Pakistan has successfully completed its reform programme. During this period difficult key structural reforms in the country have been implemented. Completion of the programme has strengthened confidence of the international community in government’s economic agenda. The government has put the country on the path of sustainable growth which is being internationally recognized and reflected in the improved ratings by all major rating agencies including Moody’s, S&P and Fitch.

Recently, researchers at the Center of International Development (CID) at the Harvard University have predicted that Pakistan's annual growth rate over the next 10 years would be nearly 6 percent. This is a one point GDP growth rate increase compared to their earlier projections whereby Pakistan GDP growth rate was set to grow at 5 percent by 2025.

The minister also remarked that sharp deterioration of PKR – US exchange rate in the interbank market led to speculation and anxiety in the foreign exchange market. However, prompt action by the SBP resulted in stabilization and averted the high risk of speculation.

Finance secretary briefed the meeting on economic situation. The GDP growth of the outgoing fiscal year 2017 was recorded at 5.3 percent, the highest in ten years. The impressive growth was on account of growth in services and agriculture sector. The turnaround in agriculture growth was due to government's supportive policies and high credit disbursements. The growth momentum in LSM continued, mainly supported by better energy supplies; lower commodity prices; and accommodative economic policies. The sector recorded an impressive growth of 9.7 percent in April 2017 as compared to (-2.9 percent) last year. During July-April 2017 it recorded a growth of 5.58 percent compared to 3.85 percent. The outlook of large scale manufacturing is encouraging on account of supportive economic policies, low interest rate and higher PSDP spending. The inflation has been contained at 4.16 percent much below the target of 6%.The foreign exchange reserves are at comfortable level, while the foreign direct investment (FDI) saw an increase of 8.6% during July-May FY 2017.

The meeting noted that external public debt to GDP has reduced from 21.4 percent in FY 2013 to 20.8 percent while net domestic debt increased from 38.8 percent in FY 2013 to 40.5 percent in FY 2016. As of July-March 2017, the net public debt stood at 59.3 percent below the threshold of 60 percent as prescribed in FRDL Act.

The minister informed that government is adhering to the Medium Term Debt Management Strategy to make public debt portfolio more sustainable. The government is focusing on extending the average time to maturity of domestic debt. The debt sustainability indicators of domestic and external debt have improved compared to FY 2013.

The Governor SBP informed that monetary expansion during FY 2017 remained aligned with the overall improvements in macroeconomic indicators with substantial contribution stemming from pick-up in private sector credit. In fact, the private sector credit flows posted their highest level since 1999. The credit to private sector recorded strong growth of 18.7 percent (Rs.633.2 billion) during July-23 June FY 2017, compared to 9.5% in the comparable period of FY 2016. Prudent monetary policy and lower budgetary borrowing from commercial banks have helped the private sector credit boom. Overall, there has been a broad-based increase in credit demand, especially from fixed investment, during FY 2017 with impetus coming from: textile, manufacturing, commerce & trade, electricity, gas & water supply, food and beverages, coke and refined petroleum, chemicals, cement, construction. Reserve money growth decelerated to 22.5 percent during 01 Jul-23 June FY 2017 as against a growth of 27.1 percent in corresponding period of last year. During 01 Jul-23 June FY 2017, CIC stood at Rs.576.26 billion compared with an increase of Rs.703.65 billion in the corresponding period of FY2016. Total deposits with banks have improved by 12%. However, the current account deficit increased to over 3% of GDP and policy interventions need to be taken to address this challenge.