Aurangzeb outlines harsh measures for stability

KARACHI:

Finance Minister Muhammad Aurangzeb reiterated the government’s commitment to achieving macroeconomic stability as a foundation for sustainable growth. Addressing the Karachi Chamber of Commerce and Industry (KCCI) on Tuesday, Aurangzeb stressed the critical need for tough decisions to stabilize the economy before taking growth-oriented initiatives, according to a press statement issued by KCCI.

The finance minister explained that without macroeconomic stability, any growth-oriented measures would lead to balance of payments (BoP) issues, as seen in the past. “We have to make tough decisions about macroeconomic stability, which, if achieved, will ease the burden on the business community and wage earners,” he said.

He acknowledged the structural issues in the economy, noting that efforts to accelerate growth often lead to BoP problems. “This is a fundamental issue that we need to resolve. We can pursue growth only when we have enough fiscal space, which should be export-led. The business community, exporters and the value-added sector have a role to play in this,” he said.

Aurangzeb admitted that the increased taxes on wage earners was a short-term measure, albeit an unpopular one. “We have raised taxes on the business community and the wage earners this year, but we cannot continue with this approach. Tax-free sectors, including retailers, agriculture and real estate, must be brought into the tax net to reduce the burden on existing taxpayers,” he said. He appreciated the provincial governments that agreed to legislate for the taxation of the agricultural sector.

Underscoring the importance of effective tax enforcement, he said, “We are at the end of the road. We cannot continue to raise taxes on the business community and wage earners. We need to bring tax-free sectors into the economy.”

Commenting on the recent decision by the State Bank of Pakistan (SBP) to cut the interest rate by 1%, Aurangzeb described it as a positive step. Despite the potential inflationary impact, he believed the SBP had room to cut interest rates further gradually. “High interest rates, taxes and energy tariffs are significant burdens on the business community. The government recognizes these issues but relief can only be provided within the available fiscal space,” he added.

Aurangzeb set ambitious targets for agricultural and IT exports, exhorting the business community to strive for $10 billion in agricultural exports and $5 billion in IT exports. He also called on banks to increase lending to the private sector, particularly farmers and Small and Medium Enterprises (SMEs), based on cash flow rather than collateral.

He assured that all designated tax refunds up to June 30, 2024, totaling Rs 51 billion, were released to industries on July 1, 2024. Including duty reductions, the total refunds will amount to $70 billion. “Making these refunds increases the cost of liquidity for industries as they acquire working capital at around 20% interest, adding to the cost of doing business,” he said. He pledged that the government would waive the refunds immediately.

Addressing misconceptions about ministerial privileges, Aurangzeb clarified, “I do not get a salary and all the ministers present at KCCI today pay their bills from their own pockets. At the federal level, we need to cut spending.”

He recalled Dr Ishrat Hussain’s report on the right size of government, which was never implemented. A right-sizing committee overseen by the prime minister is now reviewing ministry and entity spending.