What is your mission at the finance ministry?
The administration is here because the system that we had previously did not work, and so things deteriorated. Whether it was the system, or whether it was the fault of individuals is debatable. It may have been a combination of both.
The government is staVed by professionals. We have brought in 25 new people from the public and private sectors, the World Bank, the IMF and ADB to look at where we are, and where we’re going, in a more professional and businesslike way.
People in the government don’t have a political agenda, they want to do the right thing. Once they do what they have to do, then eventually the government will go back to being an elected government. The supreme court has set out a framework for a government in transition. Three years is a good time to get some reforms under way and put some runs on the board. When the next government comes in, some of the basic issues will have been addressed and resolved.What has the government achieved so far?The government stabilized the situation concerning cashXows, and made sure that all payments were kept current. In addition we have liberalized the foreign-exchange regime to provide a vote of conWdence. We have taken a lot of administrative decisions such as freeing up the remittance of dividends and royalties.Then we set out to create a road map for the economy. The chief executive speciWed economic renewal as one of the key factors. Four objectives were established for the economy. They are: self reliance, poverty reduction, building investor conWdence, and good governance.To these ends, we brought together 200 stakeholders from diVerent parts of the economy, from the public and private sectors, from the press and other areas, and we created an economic advisory board as a permanent body. This resulted in the establishment of a structural reform agenda, whose topics comprise: Wscal reform, Wnancial sector reform, privatization, poverty reform, agricultural reform, oil and gas sectoral reform, and institutional reform.Could you outline your plans for dealing with Pakistan’s low tax take?We want to broaden the tax net, reduce the number of taxes and get every segment of the population to pay their fair share. A large part of the economy is in the parallel sector, and we want to bring them into the net. The general sales tax has been in force in the country for Wve years and it is now our single largest tax. But we plan to introduce a comprehensive tax survey that will embrace every single shop and every single house in 13 cities. This will be a mammoth undertaking, and we have recruited several thousand people, but the goal is to ensure that people contribute their due share to the national exchequer.What plans do you have in store for the financial sector?We are putting professionals into the banks, and we are creating an RTC to take sick assets out of the banking system, in preparation for privatization of the state banks. We are also creating a micro-economic bank to handle our poverty reduction programme, and bring credit to sectors where it is not currently available. As far as regulation goes, our plan is to strengthen the banking supervisory powers of the State Bank to provide an overarching umbrella. We have freed interest rates, and these have already come down by 2%, and they may do so again, but these are market-driven, and not administered rates.Is privatization a priority of the new government?We are introducing a privatization law, and the privatization programme will resume shortly with some small sales. We look forward to privatizating some larger units, and subjecting them to the discipline of the Securities&Exchange Commission and the Stock Exchange. Then they will be required to declare Wnancial results and hold board meetings. We are eager that the public should be able to participate in the assets of the country. We are also proscribing that 90% of the proceeds of privatization should go towards debt reduction, while 10% goes towards poverty reduction programmes. Poverty is a major problem. How you plan to alleviate it?We believe that through the conduct of sensible economic policies, we will encourage economic growth and that the fruits of this will trickle down to the poorer segments of society so that their lot improves. We will target intervention against poverty through a food support programme, through micro-credit, and through a rural and urban poverty development programme. These will be aimed at creating new jobs at the lowest level and in due course raise living standards. Micro-credit is particularly important because there are many people who do not want the dole, but they want the ability to work and earn an honest wage. What are the key indicators, and problems?Debt servicing costs are high – they are over 50% of the budget – and they are an issue. The biggest element in the Wgure is domestic debt, not foreign debt, as many commentators incorrectly believe.This year, we expect GDP growth to be 4.5%, up from 3.2% last year. This in part reXects the strength of the agricultural crop and the buoyancy of the textile sector. An indication of the strength of the textile sector is the fact that a record $400 million of machinery has been ordered. Because of a tight monetary policy, we have kept inXation at 4%. This year we expect exports to be 11% higher than last year. Tax collection has also been strong, and is now showing an 18% year-on-year increase.Could you outline the situation with the IMF?There is no dispute, we just want to have a programme. The government has been working with the Fund for a long time. We have had discussions in Washington and we presented to the IMF our home-grown package and their reaction was good.The IMF programme is important because once in place it will ensure greater conWdence in our economic programme. We also hope to get some money from them, and then we will get other creditors feeling better. We know that the Paris Club, the ADB, the World Bank – all are watching for the start of the IMF programme. It is our hope that IMF money will start Xowing in July. We have managed our foreign exchange reasonably well and are current on our payments.Have you progressed in negotiations over the IPP tariffs?Of all the highly disputed price tariVs for the independent power projects (IPP), all but two have been negotiated. Hubco is the only remaining issue, but now that we have a tariV benchmark, that too should be resolved. We want to negotiate a commercial deal with National Power and its partners. But whatever we do will have to be in the national interest. The World Bank will be involved because they are guarantors to the project and I think it is recognized by everybody that everybody will have to take a bit of a haircut. The tariV structure is quite rich and we will have to renegotiate it. The government and Hubco want an amicable commercial solution.
