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Pakistan’s Economic recovery and its emerging role in the Region – Finance Minister’s address at John Hopkins University

Washington D.C., October 09, 2014 (PPI-OT): Mr Vali Nasr Dean; School of International Studies, Honorable members of the Faculty, Members of think tanks and Dear Students,

Good Afternoon

It is my profound privilege to join you this afternoon here at the School of Advanced International Studies (SAIS). The School is an icon of academic excellence in international studies, imparting its education globally through different campuses in USA, Europe (Italy) and Asia (China). I thank you the faculty and staff of the School to have afforded me an opportunity to share my thoughts on a subject that would certainly be of interest to students of international affairs.

Pakistan’s Remarkable Economic Recovery

Pakistan has undergone a remarkable economic recovery over a short period of time, which is widely acknowledged by independent analysts, particularly international financial institutions. Even though the Government of Prime Minister Nawaz Sharif inherited a broken economy, it was not deterred by the challenges.

Within few days of presenting the first budget in June 2013, the Government introduced deep-rooted economic reforms, such as tax measures and adjustment in administered prices, without which meaningful hope for economic revival was not possible.

Based on this reform agenda we were able to secure a three-year Extended Fund Facility (EFF) program from the IMF in September 2013 for nearly $6.4 billion. The program entails a rigorous discipline to economic management. So far we have completed three reviews under the program and the 4 th Review is under consideration.

Let me briefly share some of the key achievements we have made in a short period of first fiscal year of our government:-

i. Economic Growth, which had averaged around 3% in the five years before our Government, rose to 4.14% in FY 2013-14 as compared to 3.7% in FY 2012-13. This is the highest growth in the last five years;
ii. Per Capita Income, which stood at $1340 in FY 2012-13, has increased to $1386 in FY 2013-14, showing a growth of 3.5%;

iii. Industrial Sector, which grew by a meagre 1.4% during FY 2012-13, has registered a growth of 5.8% in FY 2013-14, aided by increased availability of electricity and better management of available gas supplies. This is also the highest in the last six years;

iv. Inflation, which had averaged around 12% in the five years before our Government, was recorded at 8.6% during FY 2013-14, that too despite the fact that we had taken difficult decisions to raise taxes and rationalize energy prices;

v. FBR Revenues, which had registered a mere 3% growth in FY 2012-13, are up by 16.4%, rising from Rs.1946 billion to Rs.2266 billion during FY 2013-14;

vi. Fiscal deficit, which was registered at 8.2% of GDP during FY 2012-13, has been brought down to 5.7% in FY 2013-14.This is the single largest fiscal adjustment in one year. Here, I would like to remind that in the revised estimates for FY 2012-13, we were told that the fiscal deficit will be 8.8%.

We had taken office only a few days earlier but even then in the three weeks of June 2013, concerted efforts were made to economize on spending. The result was that actual deficit was brought down to 8.2%;

vii. Development Spending was recorded at Rs.441 billion in FY 2013-14 against the revised target of Rs.425 billion. Thus, unlike in the past when adjustment was achieved by cutting development spending, our Government has made full development spending, which rose by 36% from actual spending of Rs.324 billion during FY 2012-13;

viii. Credit to Private Sector, which was registered at Rs.19 billion during FY 2012-13,increased to Rs.379 billion for FY 2013-14,a growth of 19 times and reflecting increased investment activity in the
private sector;

ix. Government Borrowings from State Bank of Pakistan, which were at a level of Rs.1446 billion during FY 2012-13, were reduced to Rs.303 billion, merely 21% of last year’s level;

x. Exports were recorded at $25.13 billion during FY 2013-14 compared to $24.46 billion during FY 2012-13, registering an increase of 2.73%;

xi. Imports were recorded at $45.11billion during FY 2013-14 compared to $44.95 billion during FY 2012-13, showing a negligible increase of 0.35%;

xii. Remittances, which were recorded at $13.93 billion during FY 2012-13, rose to $15.83 billion during FY 2013-14, showing an increase of 13.7%, for which I salute my expatriate Pakistanis for playing such a critical role in the country’s economy;

xiii. Exchange Rate, has depicted remarkable stability and appreciated during the tenure of our Government. In the beginning, as the country entered into IMF Program, speculators caused significant volatility through speculative behaviour, also aided by initial decline in reserves in the face of heavy
repayments due from the previous IMF loan.

The Government has handled the crisis deftly as, on the one hand, we checked that speculative behaviour and, on the other, mobilized additional resources to shore-up reserves. During this calendar year alone, the rupee has appreciated by 7%, after having pushed up to Rs.110 a US Dollar in November 2013. It had traded in the range of Rs.98-99 for nearly three months, and this is the single most important indicator of economic stability.

xiv. Official Foreign Exchange Reserves, which had declined to a precarious level when in June 2013 they stood at $6 billion, of which $2 billion were due to a swap that was payable in August. More importantly, besides regular debt servicing, a payment of $3.2 billion was due to IMF, bulk of which was in the first half of FY 2013-14. In February 2014, reserves of the State Bank had fallen to $2.82 billion.

Many had predicted that Pakistan would soon default. It is from such a precipice that we have pulled the economy back and put it in on a sound footing. It is due to our prudent economic management and the confidence of our international partners in our polices that foreign exchange reserves of the country have entered safe territory and no longer pose any risk to the economy. As on 1st October, 2014, the reserves stood at $13.92 billion comprising $8.882 billion of the State Bank.

xv. Karachi Stock Exchange Index, which stood at 19,916 on 11th May, 2013, the day the elections were held, has continuously scaled new heights and stood at 29,997 on 1st October, 2014 showing an increase of over 50%. On the other hand, market capitalization increased from Rs.5.04 trillion to Rs.7.22 trillion for the same period, showing an increase of 43%; and

xvi. Incorporation of New Companies, which was recorded at 3953 during FY 2012-13 has increased to 4587 during FY 2013-14, showing an increase of 16%.

Ladies and gentlemen,
In addition to the above, we have achieved certain results that have eluded the previous government for its five-year term:

i) Raising of $2 billion through Euro Bond after 7 years;

ii) Successful auction of 3G-4G licenses. Nearly $1.2 billion were raised and some more licenses are still available for sale;

iii) Resumption of program lending by World Bank and ADB, that has enabled us to access some $ 1.5 billion from these institutions during the year;

iv) Successful revival and resumption of the privatization program, whereby we have already divested the shares of United Bank Limited (about $400 million) and PPL (subscription Rs.30 billion, which is highest ever in our stock market history; and realization of Rs.15.3 billion); and

v) Construction of terminal at Port Qasim to import LNG, which will likely receive 200 MMCFD of LNG within one year.

Ladies and gentlemen,

Two other initiatives of our Government are also worth mentioning:

i. We have listed public securities for trading in the stock exchange to enable individuals who cannot buy them in the open auction, to invest in such securities; and

ii. Pro-poor expenditures, through the National Income Support Program, have witnessed a phenomenal increase from Rs.40 billion in FY 2012-13 to Rs.118 billion in FY 2014-15 (a nearly 3 fold increase). Under the program, the individual stipend has been raised from Rs.1000/- to Rs.1500/- and we increased number of beneficiary families from 4.1 million during FY 2012-13 to 5.3 million in FY 2014-15.

Ladies and gentlemen,
International think tanks and research groups have recognized Pakistan’s impressive economic turnaround in the first year of our Government. JETRO declared Pakistan as likely to be the 2nd choicest place for FDI;

Goldman Sachs forecasted that Pakistan which is currently at 44th position, would be world’s 18th largest economy by 2050; OICCI raised Pakistan’s index from -34 to +2; Moody’s raised our economic outlook from negative to positive; and in Neilsen’s Global Survey of Consumer Confidence, Pakistan’s index rose to 99 in the 1st Quarter of 2014 from the lowest level of 86 in the 3 rd Quarter of 2011.

Ladies and gentlemen,
Now, I will give an overview of our Government’s vision for 2017-2018:

i. GDP to grow gradually to around 7%;

ii. Inflation to remain in single digits i.e. no more than 8%;

iii. Fiscal Deficit to be brought down to 4%;

iv. Foreign Exchange Reserves to be built over $20 billion;

v. Investment-GDP Ratio to be increased to 20%;

vi. Industrial sector to grow by 8%;

vii. Public Debt to be brought down to less than 55% of GDP;

viii. Tax-GDP Ratio to be increased to 15%;

ix. Exports to be increased to $32 billion;

x. Current Account Deficit to be brought down to -2% of GDP;

xi. Foreign Direct Investment to be increased to $5.5 billion;

xii. Expending around 4% of GDP on education and health;

xiii. Poverty Alleviation and Support to vulnerable sections of the society;

xiv. Power cuts to be reduced; and

xv. Shortage of Natural Gas to be met with enhanced supplies through increased exploration/production, imports both overland and sea.

The above performance is a result of implementation of a broad-based reform agenda aimed at restructuring of power sector, public sector enterprises, corporate governance, banking and financial sector and improvement in investment climate.

It is to be noted that the resources under Fund program have been significantly less than the repayments that were due from the previous abortive program.

Let me also briefly share that in recent days our economic program has faced certain pressures in the backdrop of disruption due to politics of Long March and Sit-ins resorted to by two parties, one of which has about 10% presence in the National Assembly and the other, headed by a Canada-based cleric, has no representation in the Parliament.

The exchange rate has depreciated by 4% and stock market was affected, but soon recovered. The situation has negatively impacted the evolving feel-good factor that was ensued by our economic recovery. We are, however, hopeful that we will overcome these difficulties and our journey towards economic prosperity will remain on course.

Pakistan and Its Region

With 180-million strong people, majority being in the age group of less than 25 years, strategic location in the South-East Asia, vastly endowed with fertile lands and natural resources, Pakistan is the only Muslim nation with a nuclear capability.

The vast majority of its people are moderate and shun extremist ideas, as has been evident in general elections where repeatedly people have voted for political parties representing modern and progressive agendas.

Undoubtedly, extremism has been a problem for the country but it lives on the political fringe, incapable to elicit the confidence of a large majority of Pakistani people. The public opinion is now firmly settled against the ideology and ways of the extremists.

Supported by this unity of public opinion, the Armed Forces of Pakistan are currently battling for last few months to eradicate the last sanctuaries of extremists in the North Waziristan Agency of Pakistan’s Tribal Areas. This fight demonstrates our commitment to eliminate extremism from Pakistan and will go a long way in bringing peace and stability in the region.

Ladies and Gentlemen:

Pakistan’s geography is bounded with Iran, Afghanistan, China and India. Its stability and economic prosperity will contribute immensely to the peace and stability of the region that houses more than half the world population.

The region is also home to a sizeable number of world’s poor. End of conflict in any part of the world will improve economics, but none would do so at a scale as it will in this region. Therefore, it is in the interest of this region to remain free of conflict so that greater amount of resources is diverted for improving the lives of its peoples.

A Prosperous Pakistan will contribute to Regional Prosperity

India

Economic recovery and prosperity of Pakistan will play an important role in the region. We are keen to settle our disputes with India so that the two countries can focus on building economic relations. Undoubtedly, a large number of economic opportunities will benefit both Pakistan and India but we need to resolve our bilateral issues so that economic relations are not compromised and detracted by those disputes.

Prime Minister Nawaz Sharif took the bold initiative of attending the swearing-in ceremony of Prime Minister Narendra Modi so as to write a new chapter in our relations. However, this initiative has so far not borne fruits, but we will continue to strive to break the ice to move forward to normalize our relations and enable the people of the sub-content to realize their innumerable synergies and complementarities.

China

China and Pakistan are bound in historical relations since the founding of the two countries. In the last decade, China has invested significantly in Pakistan in almost all economic sectors. We our expanding our economic ties with China by building the Economic Corridor that will link Gawadar to Kashgar, both through railways and highways, sub-planting the old Silk-Rout. The concept of the Economic Corridor will usher a new era of economic cooperation in the region by opening otherwise inaccessible areas and link them to profitable markets in the entire neighborhood.

Afghanistan

We have supported the process of elections in Afghanistan and welcomed the resolution of election dispute between the presidential candidates and eventual transition of power to new democratic government.

We have also welcomed the signing of the U.S. Afghanistan Bilateral Security Agreement (BSA), which we believe will contribute to stability in the wake of withdrawal of International Security Assistance Forces (ISAF) from Afghanistan.

Let us frankly admit that there has been a certain degree of mistrust between Pakistan and Afghanistan. However, our government has taken measures to promote an environment of trust and confidence with Afghanistan also. We are looking forward to work with Afghan President Ashraf Ghani and to lay the foundation of a new beginning in our bilateral relations.

There is tremendous scope of economic cooperation between our two countries, not just through bilateral trade and investment, but in linking the entire central Asian region with South East Asia and Arabian Sea. Peace and stability will greatly enhance the prosperity of the region.

Iran

Iran is a very important neighbor with whom we not only share a very long border but also, like Afghanistan, strong cultural and religious ties. We are pleased with the recent easing of sanctions on Iran and look forward to further improvements in this direction. Lifting of sanctions on Iran will have a salutary effect on the economics of the region. Pakistan will benefit immensely as it will pave the way for the construction of the Iran-Pakistan gas pipeline, where India can also join eventually. Here again Pakistan’s role in helping meet India’s energy needs through an over-land gas pipeline is clearly important.

Projects of Regional Connectivity

Apart from contributing to regional economy through cooperation with its neighbors, Pakistan is actively promoting a number of projects that would enhance regional connectivity and joint exploitation of regional resources. Three projects are notable in this regard.

First, the CASA-1000 is the Central Asia South Asia electric power transmission project that will transmit already available surplus power to deficient countries, Pakistan and Afghanistan.

The 1222 km transmission line, costing nearly $1 billion will originate in Kyrgyz Republic and pass through Tajikistan and Afghanistan and terminate in Pakistan. It will supply 1300 MW of power, 300 MW for Afghanistan and 1000 MW for Pakistan. Our Government has played a lead role in reviving this years old project which existed on paper , and is trying to make this project a reality.

Second, we are the central part of the TurkmenistanAfghanistan-Pakistan-India (TAPI) gas pipeline project, which will supply natural gas from Turkmenistan to Afghanistan, Pakistan and India. The project is leadmanaged by Asian Development Bank and currently detailed feasibility is under preparation. It will contribute immensely to lessening the energy shortages in South Asia.

Third, Central Asia Regional Economic Cooperation (CAREC) is a partnership of 10 countries (Afghanistan, Azerbaijan, Kazakhstan, Kyrgyz Republic, Mongolia, Pakistan, People’s Republic of China, Tajikistan, Turkmenistan and Uzbekistan), supported by 6 multilateral institutions, working together to promote development through cooperation, leading to accelerated growth and poverty reduction.

The priority areas of cooperation are transport; trade facilitation; energy and trade policy. CAREC Ministers have recently approved a $23 billion Action Plan for undertaking regional connectivity projects in the priority areas in member countries.

Pakistan is also an active member of South Asia Association for Regional Cooperation (SAARC), comprising Pakistan, India, Bangladesh, Sri Land, Maldives, Nepal and Bhutan, and Economic Cooperation Organization (ECO), comprising Pakistan, Iran, Turkey and several central Asian countries.

These two blocks in the south and north provide us a big role in promoting economic growth, peace and stability in the region and we will continue to play our role in this regard.

Concluding Remarks

Let me conclude by stating that an economically strong, democratic Pakistan will not only defeat extremism at home but would contribute immensely to the stability of the region. It will also be an engine of growth for the regional economies with its strategic location to sea and contiguity to vast land mass of South Asia that connects efficiently to the Eurasian land mass as well.

I thank you again for affording me this opportunity to share my views on the subject.

God Bless You All

For more information, contact:
Director General (Media)
Nadeem Haider Kiani
Ministry of Finance
Government of Pakistan
Room # 514, Block-’Q’, Finance Division,
Pak. Sectt. Islamabad
Tel: +92-51-9211707, +92-51-9208281, +92-51-9206382
Fax: +92-51-9210877
Email: so_coord1@finance.gov.pk

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