Finance adviser claims measures underway to reverse currency’s downward trend and rubbishes reports of demonetization
Adviser to the P.M. on Finance Shaukat Tarin on Friday warned “speculators” against believing they could profit off the rupee’s devaluation indefinitely, stressing that steps were underway to make the rupee go “on the other side.”
“First it was said that [rupee] was falling because the deal with IMF was not reached. The agreement happened [and there was no change],” he told journalists in Karachi. “The benchmark is the real effective exchange rate. It compares your currency to the currency of your competitors and says what your exchange rate should be around. Experts say that according to the real effective exchange rate, the rupee should [trade] around 165 or 167 or 168 [to the U.S. dollar],” he said, claiming that speculators had led to the rupee being “undervalued” by Rs. 10.
“We are taking some steps because of which the rupee will go on the other side,” he claimed. “They [speculators] will be badly defeated so don’t get into this kind of speculation. Rupee will move on both sides,” he added.
To a question, he dismissed reports that the rupee could be demonetized. “The government will not take any measures that would hurt businesses’ confidence or create distortion in the market,” he maintained.
Answering a question on whether the government was set to unveil a “mini budget” in Parliament to meet the requirements for resuming a $6 billion International Monetary Fund (IMF) loan, Tarin said that this was needless sensationalism. “When I became the finance minister, I said we will not increase taxes. We will not allow [IMF] to impose more taxes on people who are already paying them,” he claimed, adding that the focus would be on withdrawing tax exemptions to various sectors.
The finance adviser said that the government’s agreement with the IMF did not call for more taxation, but the exemptions could no longer continue as they “distorted” the tax system.
Tarin said the IMF had urged Pakistan to focus on targeted subsidies while maintaining a general sales tax of 17 percent across all sectors. He noted that the government provided subsidized gas to fertilizer companies and did not impose any tax on them. The combined subsidy provided to the fertilizer industry was around Rs. 150 billion, he said, adding that it wasn’t reaching the farmers. The government would use the Ehsaas database to provide direct subsidy to farmers instead, he said.
The IMF, on Monday, announced that it had reached a deal with Pakistan to revive a suspended $6 billion loan facility, subject to the implementation of “prior actions” and approval by the lender’s executive board. Among the prior actions required are increases to the electricity tariff; greater autonomy for the State Bank of Pakistan; and a gradual increase of the petroleum levy to the maximum permissible value of Rs. 30/liter.