BR Research: It’s a bouncy pitch for you today. The market’s criticism is that in you sounded overly pessimistic in your first month in office when the situation wasn’t that bad on the macroeconomic front. Now, after the two months that followed and in the wake of PM’s visits to Saudi Arabia, UAE and China, you sound too optimistic, categorically stating that the balance of payment (BOP) crisis had been resolved. We are afraid that this oscillation between pessimism and optimism is weakening the credibility of the finance ministry in the market.
Asad Umar: My earlier pessimism was in line with the economic conditions. And the markets themselves notice everything. Markets noticed when your current account deficit (CAD) was coming in at $2 billion per month in May, June and July. The markets also noticed when reserves were falling fast and loans were increasing. The markets noticed that between December 2017 and July 2018, PKR had depreciated by 23 rupees and interest rate hike had gone up to 2.75 percent. (As for the BOP crisis resolution), even prior to elections, I always said that a bailout was inevitable; the only question was who would do it.
When I recently explained at the 100-day ceremony in Islamabad that CAD had come down from $2 billion per month to $1 billion per month, people started clapping. I told them it’s not the time to clap, for much more needs to be done as Pakistan cannot afford to have a CAD of $1 billion per month. I never said that the conditions are excellent. I will repeat for you what I have said earlier many times: I have met the external financing requirement for FY19; therefore there is no immediate crisis. But unless we definitively control this shortfall, we need to continue working hard.
BRR: What is your idea of economic revival?
AU: We are looking to fundamentally transform the economy. For decades, economic growth has come from local consumption financed by borrowed/imported capital. But it lasts only three to four years as productive capacity in the economy is not built. We are moving towards a productivity-based growth model that is built on export orientation. We have to undertake structural changes – change the DTRE regime, introduce bonded warehouse facilities, etc. We have already reduced tariff rates for gas and electricity for the export sector; we have started refunds, which will be accelerated; we have dropped RDs on inputs which will be dropped further. All steps taken so far are with a clear export focus.
BRR: Which sectors are you looking at as priority sectors?
AU: With an eye on exports, we are looking at enabling the tourism sector. We also want to encourage small and medium, export-oriented industrial units in sectors like garments, light-engineering, etc. Then we have a major focus on IT and digital services.
BRR: Lastly, what GDP growth numbers are you expecting during the third, fourth and fifth year of your government?
AU: By year four and year five, Pakistan will return to GDP growth rate of 5 percent to 6 percent. Before that, there will be a dip. If our export orientation really takes off – and I am not predicting – then it is possible to hit a growth rate of 7 percent in the terminal years. But it would only happen if today we take difficult decisions to reorient the economy and be prepared to take the flak for it.