Citing improvement in Pakistan’s tax-to-GDP ratio and decline in its debt-to-GDP ratio, Finance Minister Muhammad Aurangzeb told the World Economic Forum (WEF) that the country is “moving in the right direction”.
The remarks from the finance minister were made during a panel discussion on debt sustainability by the WEF. The session was titled: “Back into the black: How to ease the debt structure?”
“Pakistan’s biggest challenge has been the twin deficits of the current and fiscal account,” said Aurangzeb.
He highlighted the need to have a “sustainable” tax-to-GDP ratio. “We have been hovering between 9–10%, and we are now, through structural reforms, moving towards 13.5%.”
Aurangzeb said the government is focused on reducing its expenditures and the volume of debt servicing.
Pakistan’s debt-to-GDP ratio has improved, declining from 78% to 67%. “However, we still have the wrong way to go, but we are moving in the right direction,” he said.
On the subject of debt utilization, the former banker expressed, “I don’t think there is anything wrong with borrowing. The question is what you borrow for” while stressing that loans should be used to enhance productivity and exports instead of funding subsidies or routine expenses.
On the country’s growth path, the finance minister acknowledged that Pakistan’s economic growth has been inconsistent.
“When GDP growth reaches 4%, because the economy is import-led, we run out of foreign exchange and get into a balance of payment problem,” he observed, noting that this compels seeking the International Monetary Fund (IMF) assistance.
“Of course, we want sustainable growth, but it has to be on the back of fundamentally changing the DNA of the economy towards export-led.”
CPEC Phase II
Responding to a query on the China-Pakistan Economic Corridor (CPEC), Aurangzeb said that the focus in CPEC Phase II will shift from government-to-government (G2G) collaboration to business-to-business (B2B) partnerships.
He said the government aims to convince Chinese companies to relocate their manufacturing units to Pakistan, “with a view to export from Pakistan”.
Diversifying capital market
On diversifying the capital market, Aurangzeb said that Pakistan aims to diversify capital market access and improve credit ratings by learning from Egypt’s experiences.
“We are also making efforts to issue an inaugural Panda bond,” he said as Pakistan seeks access to the world’s second-largest and deepest capital market.
Brain drain
Responding to a query on the government’s plan to create local employment opportunities and curb the ongoing brain drain, the former banker stated: “From my perspective, this is not an and or discussion, so if there are good opportunities available to young men and women from Pakistan, I think they should certainly avail those.
“Having said that, we have to create the necessary ecosystem, which the government is working hard to provide.”
The finance minister reiterated that the “government is not in the business of doing business”, saying that ‘huge opportunities’ are available for the youth in Pakistan’s IT sector.
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