He pointed out that exchange rate is overvalued by 20 to 25 percent which needs a careful adjustment in three to four phases to remove the over value. The government needs to release Rs 250 billion sales tax refunds of exporters blocked in the FBR to provide the adequate liquidity cushion and should make settlement of power sector circular debt, which crossed Rs 800 billion, to ensure smooth supply of electricity.
Pasha also emphasized privatization of Pakistan Steel Mills urgency, however, he was of the view that at this time such decisions are unlikely. Advisor to Prime Minister on Finance Miftah Ismail has been unable to take any major economic decision after taking the charge of finance ministry last month because major economic decisions appear least consideration of the government when general elections are a few month away.
The view was also shared by former finance minister Dr Salman Shah who stated that Miftah Ismail appears busy in firefighting work because political considerations have taken precedence over economic considerations. "Big actions required on economic front are not consideration of the government due to approaching general elections," he added.
Shah added that only a few statements have been made by new advisor on finance after assuming the office with one of them was about government plan to offer a tax amnesty scheme for Pakistanis to declare and bring back their foreign assets.
The federal government has appointed Miftah Ismail as the Adviser to the Prime Minister on Finance, Revenue and Economic Affairs on December 26, 2017. Dr Shah stated that Ismail also made a statement about some tax reform but did not explain whether his strategy is simplification or administrative reforms. He said even recent depreciation of the rupee against the dollar has been by default due to increasing pressure on exchange rate consequent to decline in foreign inflows and exports.
Shah added the government had two options with the one to defend the pressure on exchange rate, which was very difficult in the absence of inflow therefore, the government decided to release the pressure by allowing deprecation. About positive impact of adjustment in exchange rate on export, Shah said it will not be sustained one if fundamental problem of high input cost on account of energy, making Pakistani exports uncompetitive against other regional players, is not addressed.
In the past, he added lack of energy was a challenge and now the high cost energy and as long as this problem is not taken care of, Pakistani exports will continue to suffer in the global market. Sources in the finance ministry stated that the advisor to Prime Minister on Finance has been regular in the finance ministry and held meeting with some ambassadors of foreign missions in Islamabad as well as with the representatives of World Bank and IMF but so far has not taken any major policy decision.
They added that problems are grave on external account and the government may have to borrow from the international capital market or commercial banks in next few months to support foreign exchange reserves.