The high cost of ongoing security arrangements on our borders and the difficulty in meeting challenging revenue targets are denying to the government a badly needed cushion to further reduce domestic price of petroleum products, says the Advisor to the Prime Minister on Finance Shaukat Tarin in a panel interview to Business Recorder at his office in the Ministry of Finance in the Federal Capital.
The panel comprised Raja Aqeel, Mushtaq Ghumman and Zaheer Abbasi. In this interview, not only he spells out his strategy to ameliorate the economic crisis facing the country today, he also responds to whisperings in the capital that he would be contesting the Senate election. According to him, he's nursing no political ambitions and will quit if he finds he is not up to the task. However, he answers in the affirmative to the strong possibility of contesting the upcoming Senate elections.
THE FOLLOWING ARE EXCERPTS FROM THE INTERVIEW:
BUSINESS RECORDER: How do you plan to tackle the problem of circular debt?
SHAUKAT TARIN: Circular debt is choking the liquidity of the banking sector, power producers, and oil companies. What we need is a solution whereby outstanding payables are released by Pakistan Electric Power Company (PEPCO) which has Rs 250 billion plus outstanding receivables from FATA, KESC and private consumers. WAPDA, with the help of banking industry, is going to float substantial Term Finance Certificates (TFCs); and as an out of box solution the government is considering arranging funds through salelease of property which will bring in Rs 50-70 billion. This collectively would retire the entire circular debt by the end of this fiscal - a debt created because of inefficiencies in distribution companies and the perennial non- payment of dues by FATA and KESC. These issues must be sorted out.
BUSINESS RECORDER: When will the government pass on the difference between the international and domestic price of oil to consumers?
SHAUKAT TARIN: We reduced petroleum prices and the difference between what we retain and pass on to the consumer is not very large, except some Petroleum Development Levy (PDL). The situation on our borders does not give us much comfort to further reduce the price. The impact of the entire $147 per barrel, a price that was prevalent in the international market middle of last year, was not passed on to the consumers; by the time we started passing the impact the price was $110 to $120 per barrel. Then the oil prices began falling. At present prices are around $45. We have reduced domestic prices from Rs 87 to Rs 57, which is more than 40 percent. Nevertheless we have not closed the door to a price decline and will review prices on a monthly basis and see how much should be passed on to the consumers. We have to understand that we are under IMF program and have to meet revenue and fiscal targets.
BUSINESS RECORDER: What measures is the government taking to control inflation?
SHAUKAT TARIN: I held a meeting about the prices of essential commodities with the provincial chief secretaries and discussed how to regulate the free market, so that traders should not fleece the public. We found that with the introduction of local government system the magistrates have lost their administrative powers. Now the District Co-ordination Officers (DCOs) should see whatever law they have on their side to give strength to the prices control mechanism. The traders and transporters have not brought down the prices.
BUSINESS RECORDER: What measures would be taken to broaden the tax base for raising tax to GDP ratio?
SHAUKAT TARIN: The areas which were not taxed previously have to be taxed. We have to see how we are taxing our existing taxpayers. We have to make our tax management and machinery efficient. The sales tax base needs to be broadened. We have to move towards Value Added Tax (VAT) mode to bring retail sector into the tax net.
BUSINESS RECORDER: When will the sacred cows such as income from agriculture sector, stock exchange business be taxed?
SHAUKAT TARIN: Every time I have spoken on my nine-point agenda I mentioned that this will be done, as we move forward all the stakeholders in all the sectors including real estate, stock exchange and agriculture will be consulted. Brokers are currently enjoying a two year tax holiday. Anything which generates income should be taxed.
BUSINESS RECORDER: Why is there a stalemate in privatisation process?
SHAUKAT TARIN: This is not an appropriate time for privatisation owing to global economic slowdown and law and order situation at home. As the international financial conditions improve and our own credibility improves, that will be the right time for privatisation. The international economic scenario has changed. Our credit rating has gone down and our ability to borrow has also been affected. The privatisation policy will remain the same. However the methodology envisaged would be a public-private partnership with only 20 to 30 per cent shares to be offloaded. Rest of the shares would be kept by the government.
BUSINESS RECORDER: How do you plan to use that money?
SHAUKAT TARIN: The money will be used for debt retirement with the objective to reduce the debt to GDP ratio.
BUSINESS RECORDER: Are you making a difference as head of Finance Ministry?
SHAUKAT TARIN: I am neither a politician nor do I have long term aspirations to become a politician. It was not a matter of my wanting to get the portfolio but I was requested to accept the portfolio.
BUSINESS RECORDER: Are you an aspirant for a Senate seat?
SHAUKAT TARIN: It all depends on how things move. Up till now I have not even applied for a Senate ticket.
BUSINESS RECORDER: What is the progress on NFC Award?
SHAUKAT TARIN: At the moment Finance Ministry is being run by an Advisor and under the constitution Finance Minister chairs the meeting. Now the ball is in the Prime Minister's court. After the Senate elections, if I become the Finance Minister, I will look into it. But at the moment the authority is with the Prime Minister.
BUSINESS RECORDER: When will the 'Friends of Pakistan' meeting be held and what you expect from it?
SHAUKAT TARIN: Technical Committee meeting of the group will be held this month and the proposals will be given to the respective governments of the 'friends'. Ministerial meeting is scheduled for March. As far as Saudi oil facility is concerned, we will take up the issue bilaterally and will also discuss the facility with Saudi Arabia at Friends of Pakistan meeting.
BUSINESS RECORDER: What will be the mode of payment for oil imports after phasing out SBP's provision of foreign exchange?
SHAUKAT TARIN: The mode of payment for oil import would be initially through interbank payment. According to schedule about 15 to 20 percent will be paid in the first quarter. This should have been adopted earlier.
BUSINESS RECORDER: Are you going to Davos World Economic Forum?
SHAUKAT TARIN: I am not going, but the Prime Minister is going. He is going to Davos with a team of ministers.
BUSINESS RECORDER: How will the government reduce expenditures to meet the deficit targets?
SHAUKAT TARIN: The development budget has to be rationalised. An amount of Rs 400 billion deve1opment allocation is still with the ministriesdepartments, which must first be spent prior to more further allocations. As far as non-development expenditures are concerned all the ministries have been requested to look at cutting on gasoline, telephone, air travel and overseas trips. They have been asked to reduce non-development expenditure by 20 percent.
BUSINESS RECORDER: What steps are you taking to enforce Pakistan Procurement Regulatory Authority (PPRA) criteria for floating tenders?
SHAUKAT TARIN: I have no clue of PPRA violations; if this has been happening it would not be tolerated. If you are referring to a specific case, please bring it to my notice so that I can take action. The government rules must be followed in awarding contracts.
BUSINESS RECORDER: The Auditor General has pointed out billions of rupees of corruption in local bodies' funds. How do you look at it?
SHAUKAT TARIN: If anything concerns the Ministry of Finance I will take action. Local bodies is a provincial subject and it is the duty of the operating departments to take action against corruption.
BUSINESS RECORDER: Have you had a chance to look at the budget in terms of budget priorities and social responsibility?
SHAUKAT TARIN: We have been focusing on damage control so far and are trying to put the economy back on track. We are looking at major economic indicators like inflation, balance of trade, fiscal deficit, borrowing from central bank and stability of currency. They are all heading in the right direction and the only thing suffering now is obviously the growth rate. Clearly high interest rate is biting the industry and business and we hope that inflation will come down substantially in the next few months when we will review interest rates.
BUSINESS RECORDER: As a former commercial banker you supported consumer based lending, by in your present capacity you have to encourage savings. How do you plan to reconcile the two?
SHAUKAT TARIN: Whether it is auto industry or consumer industry, we must support the productive side of the economy. Inflation and interest rates must be brought down as quickly as possible to promote industry. We do not have the fiscal space to provide bailout package to any one industry and we would hope that with an increase in demand the ongoing trend of layoffs in various industries will be reversed.
BUSINESS RECORDER: Our textile sector still competitive?
SHAUKAT TARIN: Our industry needs help to reduce the cost of doing business. Devaluation of our currency will help some but we need more than that. Textile industry cannot be compared with Bangladesh or China because they have their own circumstances and we have our own. Our industry needs consolidation to compete with them. The research and development (R &D) support is another form of subsidy and even if we look at it sympathetically it must be skewed towards value-addition.
BUSINESS RECORDER: What is the progress on rightsizing and re-instatement of sacked workers?
SHAUKAT TARIN: If the sacked workers ouster was unjustified they should be re-instated. Jobs should be given on merit basis. I am not aware of people being hired on the basis of political affiliations; if this is true then it must be stopped.
BUSINESS RECORDER: How are you going to improve exports when industry is facing problems?
SHAUKAT TARIN: Exports are going to be affected because of recession overseas; but steps will be taken to curtail imports to offset reduced exports. There is dramatic turnaround both in Balance of Payment (BOP) and Balance of Trade (BOT). The latter declined from over $2 billion in July-August 2008 to $800 million at present. We also expect to see robust remittances that would help improve our balance of payment.
BUSINESS RECORDER: We see 15-20 growth in defence budget every year. Will it be the same next year?
SHAUKAT TARIN: With regard to defence we have to obviously look at the circumstances at our borders. It is too early to say any thing at this stage. Only time will tell.
BUSINESS RECORDER: Is their any good news for stock market?
SHAUKAT TARIN: Stock exchange has touched the bottom and is moving in the positive territory and has crossed the limit of 6000 barrier. We have removed the floor and people will buy stocks on the basis of fundamentals. I think stock exchange is moving in the right direction.
BUSINESS RECORDER: It is alleged that there are forty main players on the stock market who can hold the stock market hostage any time they want. What are your views on this?
SHAUKAT TARIN: I don't think we are different from any other country. We need to strengthen our laws and compliance to discourage cartelization and unethical practices. That's all we can do.
BUSINESS RECORDER: Were you consulted prior to the appointment of SBP Governor?
SHAUKAT TARIN: Certainly I was in the know.
BUSINESS RECORDER: Are you in consultation with opposition political parties to build consensus on the economic policies?
SHAUKAT TARIN: I share economic policies with the Cabinet and the Senate. As far as government coalition partners are concerned, there are no such consultations.
BUSINESS RECORDER: Don't you think that increasing attacks of opposition are eroding the popularity of democratic government?
SHAUKAT TARIN: We see the policy of this government has started bearing fruit. Inflation is moving down, currency has stabilised. I don't know why they are criticising the present government and if they are doing just for the sake of it let them continue.
BUSINESS RECORDER: What compromises, if any, have you made as Adviser on Finance?
SHAUKAT TARIN: I am not doing anything against my conscience. I am not that kind of a person who can be coerced into doing anything against his conscience.