GDP growth rate of over 5.5pc to hurt economy Says Shaukat Tarin

By Muhammad JuniadPublished On 06 Jan 2023

KARACHI: Folks may not realize it, but the economy is growing fast. It’s growing so fast that the country’s finance tsar is afraid he may have to cap it at 5.5 percent this year. A higher economic growth rate will hurt the country, according to Shaukat Tarin, adviser to the prime minister on finance and revenue.

Speaking at the annual dinner of CFA Society Pakistan on Friday, Mr. Tarin said he and the International Monetary Fund (IMF) want the GDP growth rate to stay in the range of 5pc and 5.5pc for 2021-22. “But I’d not like to see 6pc (growth) this year. That’s going to be damaging for our economy,” he told the annual meeting of finance professionals.

In response to a question, Mr. Tarin said the IMF program is not going to impede the targeted 5pc growth rate. “Our growth is not slowing down,” he said, adding that he’s held a “very healthy kind of discussion” with the Fund about which people will “find out pretty soon”.

He took pains to emphasize that the IMF program won’t kill growth a claim that’s in contrast to the typical IMF prescription involving reduced government spending and higher interest rates that slow down GDP growth.

“Let me tell you that we’re not very far away from what the IMF wants us to do,” he said while noting that IMF-prescribed policy actions include ending tax exemptions, higher revenue generation and reforming income and other taxes. “We told them we don’t believe in pyramiding. We believe in broadening... They also want us to grow but they don’t want us to grow in an unsustainable manner,” he said.

As evidence of the higher-than-targeted growth rate of 5pc for 2021-22, the finance adviser said motorbike sales are at a record-high level, large-scale manufacturing growth is in double digits and tax collection is Rs230 billion above its target. “At this speed, we’ll cross Rs6 trillion. It’s not because of imports. Income tax is also up 32pc. It’s all-around growth. The use of electricity is up 13pc.”

As for the rising current account deficit, Mr Tarin said its numbers are “balanced as of now”. He said the government will clamp down on imports if the current account deficit keeps growing because it doesn’t want unsustainable growth.

“The export coverage of imports has to go up. In three to four years, the export cover must go up to 70-80pc. We’re giving incentives to IT sector so that it can grow 100pc.”

He criticized the financial sector for not being responsive to the needs of the economy. About 85pc credit is disbursed in nine cities while three-quarters of it go to the corporate sector, he said. “It’s dysfunctional. We’ve got to fix it.”

He said it takes 10 to 20 years of consistent growth for trickle-down economics to work. “Trickle-down doesn’t follow four-year growth (spurts). That’s why we’re adopting a bottom-up approach,” he said, adding that the government will provide poor 4m households with interest-free loans for agriculture, business, and housing purposes, besides ensuring healthcare and technical education for them at a cost of Rs1.4tr.

“We’ll have large banks wholesale finance to NBFIs (non-bank financial institutions) and microfinance NGOs. Now is the time to roll out loans,” he said.