An Open Letter to Asad Umar
In ARY News’ ‘Off the Record’ show on October 15, 2018, Finance Minister Asad Umar discussed the issues and the steps taken by government relating to astringent challenges faced by Pakistan’s economy.
He also discussed some out of the box solutions, however, the steps mentioned in interview remained the one sided view of solutions that are under consideration.
The government accentuating on solution where third party is the focal point to the solution like to bring in investment, the investors will consider the outlook and ease of doing business.
The minister also spoke about efforts to promote exports like reducing power tariff to five mega export oriented industries.
These export industries have already become viable for most of the international market since Pakistani rupee becomes the cheapest currency in the region.
This is something special that government is taking initiatives for enhancing exports, the other aspect is reducing the imports.
The roadmap to reduce the imports should start immediately it will take time but it will not only help reduce the imports pressure on foreign exchange reserve but will also generate employment.
The most feasible project to reduce imports is to create joint venture (JV) with exploration companies and Oil and Gas Development Corporation Limited (OGDCL) to start the work on identified blocks along with work on identification of blocks with oil and gas reserves which are estimated at 105 trillion cubic feet and 9 billion barrels crude oil.
In 2017 Pakistan proved reserves are 19 trillion cubic feet and proved crude oil reserves stood at 0.4 billion barrels. The government’s priority should to bring these proven reserves into production (Data Source EIA).
The consumption of refined oil product is estimated around 600,000 barrels per day and natural gas consumption around 1500 billion cubic feet per annum.
The government has initiated multibillion dollar with Russia for Gas pipeline but it will be still import of gas which will remain part of our import bill but lot lower than oil imports.
The Honorable Minister did mention the overburdened economy with debt but his focus was on IMF which is only 2.5% of total debt, astonishingly he missed out on the portion which represents approximately 60% of total debt of Pakistan, the total domestic debt is alarming but no one is talking about this 60% component of total debt.
The government should not consider amnesty scheme rather it should go for the demonetization and/or re-monetization.
They should prioritize to register the undocumented economy as in last six to seven decades no serious steps were taken except for one or two half-hearted attempts. On the contrary, cash economy was facilitated with issuance of high denomination currency notes which gave ease to corruption, black money accretion and terror financing.
The total debt and liabilities of Pakistan stands at Rs 28,338.8 billion, the details are as follows:
The domestic debt of Pakistan is 56.7% of total debt and liabilities comprises of various bonds, government securities etc. These debts are for meeting the government expenditures.
How government can overcome this debt in local currency? Why government is short of such huge amount in local currency? The GDP of Pakistan in 2018 is Rs. 34,396 billion, however the undocumented economy is estimated at 36% (some sources estimates up to 50% of total economy i.e. Rs. 17,000 billion). The 36% amounts to almost Rs. 12,400 billion against domestic debt of Rs. 16,000 billion.
The government’s first priority should be to abolish domestic debt and turn the undocumented economy into registered economy.
The proposal for documenting the undocumented economy the only shortest route is demonetization of currency.
Once the demonetization is initiated through opening the bank account the 200 million population will be forced to open account and bring their money in the main stream economy.
Once after the exchange of currency notes, the nation starts depositing money in bank (it could be schedule or micro finance) the record will become part of national economic record.
The individual record from bank to State Bank of Pakistan and then to Federal Board of Revenue it can monitor the movement in the bank account.
This is considered the shortest route because the government can issue a timeline of 3 months to 6 months time for demonetizing process to complete.
The process of demonetizing will make it obligatory for everyone to open account and it will help eliminate fraudulent activities.
When the deposits with banks increase the State Bank of Pakistan can increase the deposit margins of banks that will bring in more liquidity to government.
This method is never used in the history of 71 years of country’s history although the Senate passed a resolution on December 19, 2016 to demonetize the Rs 5000 currency note but didn’t materialize to date.
Back then 1.02 trillion worth Rs 5000 notes were in circulation of total 3.4 trillion rupees. This method should be strictly used through banking channel it will really help broadening tax base.
The government’s focus should be on to bring undocumented economy into mainstream to obliterate domestic debt of the country after that debt servicing amount available should be utilized in up bringing the economy.