Dar warns strict action against speculators of exchange rates
By Sheeraz Aslam 'Pakistan Times' Staff Correspondent

ISLAMABAD: Minister for Finance, Revenues and Economic Affairs , Senator Muhammad Ishaq Dar here on Monday warned those speculators who are playing with country’s exchange rate that they will burn their fingers.

“They should stay away from these anti-state activities, otherwise the government will take stern actions against these unscrupulous elements if they are held for destabilizing exchange market”, he stated this while addressing a pre-budget seminar here at National Library Auditorium this morning.

The Seminar was organized by Federal Board of Revenue (FBR) in collaboration with Federation of Pakistan Chamber of Commerce and Industry (FPCCI).

Secretary General Revenue Division and Chairman Federal Board of Revenue , M.Abdullah Yousuf , President FPCCI, Tanveer Ahmed Sheikh and President SAARC Chamber of Commerce and Industry,Tariq Saeed also spoke on the occasion.

“These speculators should not forget the similar episode of 1998-99 when exchange rate was brought down from Rs.67 against one US dollars to Rs.53 against one US dollars in short span of time”, he remarked.

He said that State Bank of Pakistan (SBP) is watching the market players very closely and it is in the speculators own interest that they should behave in national interest.

The government, he said has decided to mobilize over US $ 3.0 billion during the remaining period of the current fiscal year.

“I am happy to state that strong inflows are in pipeline and the country’s foreign exchange reserves will reach over US $ 13 billion by the end June 2008”, he remarked.

The Finance Minister further said that the State Bank of Pakistan has also taken several measures to stabilize the exchange rate last week.

The rupee, he said has already gained ground and should gain more ground in coming days.

Minister for Finance, Revenues and Economic Affairs , Senator Muhammad Ishaq Dar said that he was delighted to attend this important pre-budget seminar in the midst of the leading industrialists and business leaders of the country.

He also appreciated the FPCCI and the FBR for jointly organizing this seminar.
“This is a classic example of public-private partnership in addressing the economic challenges facing the country”, he remarked.

The Finance Minister said that this is the most opportune time for holding pre-budget seminar as “we are currently engage in preparing the Federal Budget for 2008-09”.

‘ The various inputs and proposals that will emanate from this seminar will be extremely useful for finalizing our next year’s budget, he added.

Senator Muhammad Ishaq Dar further said a new democratically elected government has taken the charge of the state of affairs only last month in a difficult domestic and external environment.

“Over one year of total inaction and political expediency of the previous government on addressing domestic and external challenges, further accentuated macroeconomic imbalances”,he said.

As a result, the Minister said the economy of Pakistan is currently under pressure and facing four major challenges, that is deceleration in growth; rising inflation, particularly food inflation, growing fiscal deficit and widening of trade and current account deficits.

Mr.Dar added that growth target for the year has been revised downward from 7.2 percent to 6.0 percent against last year’s estimates of 7.0 percent.

“Poor performance of agriculture and weaker-than-expected growth in manufacturing and services are the key drivers for scaling down the growth target”, he observed.

The Finance Minister said that inflation in general and food inflation in particular has emerged as a major source of concern for the policy-makers in emerging and developing countries including Pakistan .

Higher food prices, expansionary fiscal policy, extra-ordinary increase in government borrowing from the SBP, upward revision in local energy prices, and unanticipated increase in international commodity prices are responsible for the sharp prick up in prices in Pakistan , he remarked.

“The year is most likely to end with an average inflation of over 10 percent against the target of 6.5 percent”, he maintained.

Ishaq Dar said that Fiscal deficit for the year was targeted at 4.0 percent of GDP. Recent data suggest that during the first nine months (July-March) of the current fiscal year, fiscal deficit has alreadycrossed the targeted level for the year and stood at 5 percent of GDP, he remarked

“Had there been no measures undertaken by the government, the budget deficit for the year was projected at 9.5 percent of GDP”, he added.

He said that various factors are responsible for such a large slippage in budget deficit adding said that the first and foremost is the slippage on tax side.
Weaker-than-expected tax collection owing to slower-than-targeted real GDP growth and adverse law and order situation caused slippages in tax collection.

Second, failure to make adequate provision in the budget for increases in the prices of oil and food to consumers resulted in the over run of current expenditure.

Third, subsidized power tariff also caused slippages in current expenditure because of under provision in the budget for 2007-08.

Fourth, mismanagement on account of export of wheat based on inaccurate estimates and subsequent import of wheat at much higher prices also contributed to the widening of budget deficit for the current financial year, he added.

Mr.Dar further said that the governments reliance on heavy borrowing from the SBP caused excessive monetary expansion and has become one of the principal sources of inflationary build up in the country.

He added that the inaction and political expediency of the previous government contributed to fiscal slippages beyond sustainable level.

The new government, he said finds itself in an unenviable position to have inherited such a large slippage, which neither can be corrected immediately nor can be allowed to persist as it would undermine growth momentum and macroeconomic stability.

The slippages in fiscal account as well as the unprecedented increase in oil prices have contributed to the widening of trade and current account (CA) deficits.

As a result of higher oil prices Pakistan ‘s oil import bill reached to a targeted level of $ 7.9 billion for the whole year in just nine months (July-March) of the fiscal year.

The oil bill is expected to reach $ 11.3 billion by the end of the fiscal year - almost 42 percent more than the targeted level. As a result of increase in oil import bill and excessive imports of luxury goods, Pakistan ‘s trade deficit has surged to $ 10.8 billion in the first nine months (July-March) and the year is likely to end at $ 13.8 billion - a deterioration of almost 46 percent over last year.

The Current Account deficit has widened to $ 9.86 billion in the first nine months (July-March) of the current fiscal year against the whole year target of $ 7.95 billion.

The CA deficit is projected to be $ 11.6 billion for the year. The widening of CA deficit owes to a variety of factors including extra-ordinary surge in the imports of POL products and palm oil; and a one-off large import of wheat, raw cotton and fertilizers.●