- Urgent need to incentivise domestic investors, fix the energy crisis and control the falling rupee
- Improving the productive capacity of the manufacturing sector imperative
Interview with Mr. Tariq Yousuf — President, Karachi Chamber of Commerce & Industry
PAGE: Tell me something about yourself, please:
Tariq Yousuf: I am a graduate of science from Karachi University. I am the past president Lasbela Chamber of Commerce and Industry and also the past chairman SITE Association. I am, Alhamdulilah, a successful entrepreneur and have been in the business of textiles for over three decades, contributing to the country’s economic development.
PAGE: How would you comment on the current state of the economy of Pakistan?
Tariq Yousuf: The endogenous and exogenous multiple shocks have not only deteriorated real GDP growth from 6.10 per cent in 2021-22 to 0.29 per cent provisional growth in 2022-23 but also skyrocketed the cost of doing business due to the massive rupee devaluation, the surge in policy rate, energy tariff and taxation effects. This resulted in a loss of a whopping $34 billion in 2022-23 despite the population’s annual growth rate of 2.55 per cent, according to the PBS Digital Census 2023. This leads to the effective growth rate of negative at 2.26 per cent for 2022-23.
Having said that, Pakistan secured the IMF-EFF programme, amounting to $3 billion for nine months, which was a much-needed breather for the economy. Looking at grave economic challenges, the federal interim government should incentivise domestic investors and fix the energy crisis, control the rupee devaluation against the dollar and create a conducive environment to boost Pakistan’s trade and exports to promote industrialisation and restore the competitiveness of the manufacturing sector for sustainable export earnings of the country.
PAGE: What is your standpoint on the inflated electricity bills?
Tariq Yousuf: Pakistan’s consumers have been experiencing a historic electricity tariff, which has broken all records and are paying the heavy price of low recoveries, theft and line losses of DISCOs on one hand and monthly, quarterly adjustments and seven various kinds of taxation on electricity bills on the other hand. Pakistan’s 10 DISCOs’ outstanding losses ballooned to Rs520 billion and the annual cost of electricity theft is staggering to Rs467 billion in 2021-22, and mounting circular debt, crossed over the Rs4 trillion mark. This is unsustainable and should be controlled. Therefore, aggressive campaigns should be launched against electricity theft and targeted action should be initiated. Why should consumers be paying for the theft and unpaid bills for PESCO, HESCO, SEPCO or QESCO where losses are too high? Therefore, the Uniform Tariff Policy needs to be reviewed which is a burden on honest taxpayers, paying regular electricity bills. The short to medium-term cost-reducing reforms need to be implemented to eradicate circular debt and overhauling the energy sector.
Despite under IMF programme, the government has fiscal space to provide relief to all kinds of consumers by recovering huge theft amounts, ending uniform tariff policy, utilising the provision of an emergency budget, renegotiating with IPPs on capacity payments and reducing heavy taxations on electricity bills to provide relief to the consumers.
PAGE: What is your perspective about business activities at this juncture?
Tariq Yousuf: As we have discussed above, due to the economic slowdown, rupee devaluation and high energy tariffs, business activities are at a standstill. Therefore, confidence-building measures need to be taken and incentivise domestic investors to stimulate economic activities.
PAGE: What is your take on the IMF programme for Pakistan and its ramifications?
Tariq Yousuf: If you look at the fiscal and external side of the economy, the country has been facing a recurring balance of payments crisis almost every two and a half years.
On one hand, the external financing gap is higher and on the other hand, we are unable to control twin deficits i.e. current account deficit and fiscal deficit. As a result, the IMF programme becomes imperative. This year, the country needs $28.36 billion in external financing requirements for 2023-24 according to IMF. Therefore, strong policy implementation and timely external financing would reduce near-term uncertainty and help the real economy to gradually stabilise and subsequently recover.
Despite the IMF’s external cover, it also brings prescriptions that are painful for businesses and industries and the economy.
Due to high inflation, which stood at 28 per cent, rupee devaluation by 34 per cent (around 28 per cent in FY23 and around 6 per cent in FY24 till September 1, 2023), policy rate hits peak to 22 per cent (likely to further increase) high energy tariffs hits to around Rs60 per unit etc., have not only deteriorated exports but also have negatively affected remittances due to large gap between open and interbank market, reached to over Rs20. Real inflows and deterioration in the rupee vs dollar, further escalate imported inflation and energy tariffs to a level that is unbearable for consumers and negatively affects the overall economy. Therefore, consistent economic policy coupled with integrated critical reforms needs to be taken urgently in the taxation, and energy sectors. Infrastructure is imperative to incentivise domestic investors and boost the productive capacity of the manufacturing sector of the country to revive domestic industries to have sustainable export earnings which have been stagnant for decades.