Pakistan raises bar for GDP growth
Government eyeing 6% expansion over 2 years, shows it’s ready to renegotiate with IMF on $6B loan package
Pakistan will go for an ambitious six per cent economic growth target in the next two years as the International Monetary Fund (IMF) shows its willingness to renegotiate tough conditions for a $6 billion loan in the wake of rising Covid-19 cases.
Newly-appointed Finance Minister Shaukat Tarin said the country will increase infrastructure spending to create jobs and boost economic activity in the country.
“The federal government will earmark as much as Rs900 billion [$6 billion] for development expenditure in the year beginning July. That’s the bare minimum we need for a country this size,” Tarin said during an interview with Bloomberg in Islamabad.
He said Pakistan needs to create at least two million jobs annually to avoid a major crisis in the country.
“We need at least two million jobs every year as we have almost a 110 million youth popolution. If we do not go into growth mode, we will have a major crisis on the streets.”
Accelerating GDP growth
Tarin said Pakistan will target five per cent growth in financial year 2021-22 and a further one per cent expansion a year later.
“The economy needs to expand by five per cent next year.”
The IMF has projected four per cent GDP growth for Pakistan during fiscal year 2021-22 starting in July. Islamabad is expected to post 1.5 per cent expansion during the current fiscal year ending on June 30 after a rare contraction last year.
Renegotiating $6B loan
In an earlier media interaction, Tarin said Pakistan is willing to renegotiate conditions for the $6 billion with the IMF as the country fights a third wave of the Covid-19 pandemic and is unable to increase the power tariff and revenue target advised by the fund.
“The government would not accept the conditions to raise tariffs and taxes,” the finance minister during his maiden Press conference while he underlined low revenues, circular debt, high inflation and low economic growth as the key challenges but gave solutions that are not part of the IMF agenda.
The fund reacted positively to the finance minister and said it is ready to help Pakistan cope with tough economic conditions.
During a regular online briefing on Thursday, IMF spokesperson Gerry Rice said the fund is willing to discuss Pakistan’s economic condition after the recent jump in Covid cases in the country.
“The fund is ready to discuss the sixth economic review of the Extended Arrangement under the Extended Fund Facility for Pakistan,” Rice said.
Tarin said he’s targeting Rs6 trillion revenues during the 2021-22 fiscal year compared to Rs4.75 trillion by June this year. The finance minister also showed his intention to tap up to $20 billion in undrawn allocated funds from the Asian Development Bank and World Bank to meet the country’s financing needs in coming years.
The minister also said Pakistan will also plan a global sukuk bond launch in near future.
He also aims to increase tech exports to $8 billion in two years, from an estimated $2 billion this fiscal year, as the sector has a promising future ahead.
Samiullah Tariq, head of research and development at Pakistan Kuwait Investment Company, said the finance minister has the right timing to renegotiate the terms for the IMF loan as macroeconomic stabilisation is behind, and the country needs higher growth to generate much-needed employment opportunities for a growing youth population.
“The government would like to achieve a six per cent GDP growth target before the next general elections in 2023 to have a feel-good factor,” Tariq told Khaleej Times on Friday.
He said the finance minister is targeting the IT sector, which has huge potential and good export momentum.
“It could generate mass employment and foreign currency earnings,” Tariq said.
“The finance minister has to his credit Pakistan Remittance Initiative, which increased foreign currency inflows manifold. So generating and documenting IT exports is a right area to target for exports and employment,” he added.
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