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Pakistan pledges to rein in spending as Nawaz Sharif prepares for election

LiveMint logoLiveMint 28-02-2017 Chris Kay

Islamabad: Pakistan’s finance minister Ishaq Dar pledged that the government wouldn’t go on a spending binge before next year’s elections as it wants to maintain reforms made under a three-year International Monetary Fund (IMF) bailout.

“We are not going to be loosening the purse, at least as long as I’m here,” Dar, 66, said in an interview in his office in the capital, Islamabad. “The policy intention of the government is not to lose gains which we have achieved so far.”

Pakistan emerged from the edge of a debt crisis in 2013, staved off when the then newly elected government of prime minister Nawaz Sharif submitted to the $6.6 billion IMF loan programme, which ended in September. Some analysts have voiced concern that, released from the IMF’s shackles, Pakistan’s spending will surge as the country heads toward the ballot in 2018, which Sharif is widely expected to contest.

Pakistan’s public sector development programme spending has more than doubled to Rs1.67 trillion ($15.9 billion) in five years, according to budget documents.

In a document provided to Bloomberg, the finance ministry said it would maintain medium term spending on social and “pro-poor sectors” while reducing the fiscal deficit to 3.8% of gross domestic product this year, from 4.6% the previous year

International debt

The government also plans to tap either the international Eurobond or sukuk market toward the end of the fiscal year through June, Dar said. Pakistan issued $1 billion of five-year Islamic-compliant debt in October at 5.5%, despite violence on its disputed border with India casting a shadow over the sale.

“Generally we ask for $500 million, but it depends on what we get offers for,” Dar said. “Pakistan has established good ground and now has a great appetite from the foreign investors.”

Amid Pakistan’s economic stabilization and a surge of investment and loans from China valued at around $55 billion, Sharif’s government is seeking a growth rate of 7% by 2018, from a current 5.7% target for this fiscal year.

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Rebasing GDP

Even so, Dar said the size of Pakistan’s economy may be understated by about 20% to 25% as the base year used by the statistics agency is over a decade old. Dar has asked the Pakistan Bureau of Statistics and World Bank to start work on rebasing the GDP data, which will take nearly a year. He expected it may boost the annual growth rate by about 1 percentage point.

Some doubts have arisen over the sustainability of Pakistan’s economic growth due to a decline in exports last year to their lowest level since 2010. While the government is seeking to end power outages that have hindered industries, the rupee’s strength has also been blamed for its inability to compete within the region.

Dar said inflation shouldn’t go “haywire” and he expected it around 5% this fiscal year and possibly the next. While maintaining that the central bank was independent, he said didn’t expect a rate hike in the near term.

“There are no clear indications of CPI going up,” Dar said. “I don’t see any major reason why there should be a major increase in the policy rate this fiscal year.”

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Corruption case

Dar declined to comment when asked if the ruling Pakistan Muslim League-Nawaz had contingency plans in case Sharif was disqualified by a corruption ruling due to be announced by the supreme court. Dar, a long time ally to the prime minister, is often mentioned as a potential leader in the party outside Sharif family, which heads the PML-N.

Imran Khan, the former cricket star and opposition leader, brought a case to the supreme court in November after leaks last year from a Panama law firm that showed Sharif’s children used offshore companies, allegedly to make property investments in the UK The case has distracted the party and if the court finds the assets were illegally created, the election commission can declare Sharif ineligible to be a lawmaker and prime minister, potentially triggering a power struggle.

Sharif and his family have repeatedly denied any wrongdoing. Dar said a ruling against the leader was unlikely because Sharif’s own name wasn’t in the Panama companies. According to their legal advice the party is “very confident that a favourable decision is expected,” he said. Bloomberg

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