Pakistan Pledges to Rein in Spending as Sharif Eyes Election

  • Government to issue international debt this fiscal year: Dar
  • Rupee not overvalued, Dar sees no hike in benchmark rates

Pakistani Finance Minister Ishaq Dar.

Photographer: AAMIR QURESHI/AFP/Getty Images

Pakistan’s Finance Minister Ishaq Dar pledged that the government wouldn’t go on on a spending binge before next year’s elections as it wants to maintain reforms made under a three-year International Monetary Fund 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 program, 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.

Read more: Pakistan to Find Out What the Economy Is Like Without Safety Net

Pakistan’s public sector development program spending has more than doubled to 1.67 trillion rupees ($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 percent of gross domestic product this year, from 4.6 percent 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 percent, 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 percent by 2018, from a current 5.7 percent target for this fiscal year.

Rebasing GDP

Even so, Dar said the size of Pakistan’s economy may be understated by about 20 percent to 25 percent 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.

The rupee has remained stable at an average of 104.7 per dollar in the past year, barely moving out of a range of 1 rupee plus or minus. The IMF said last year the currency was probably overvalued by as much as 20 percent. Dar said the currency wasn’t overvalued or pegged against the dollar.

“The forex market is independent,” he said. “I think it is the confidence of the investors, confidence of the market players and it is the true strength of the currency itself that it is not declining. So I can’t force.”

Dar said inflation shouldn’t go “haywire” and he expected it around 5 percent this fiscal year and possibly the next. While maintaining that the central bank was independent, he said he didn’t expect a rate hike in the near term. The State Bank of Pakistan has kept the target policy rate unchanged at 5.75 percent in the past four meetings, after a surprise 25 basis point cut last May.

“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.”

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 the 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 U.K. 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 favorable decision is expected,” he said.

— With assistance by Faseeh Mangi

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