IMF programme contours
The first installment of $ 6 billion loans package approved by the International Monetary Fund (IMF) has been received. The approval of the Washington base lending agency was crucial because it paved the way for soft loans from other multilateral donor agencies including the World Bank and Asian Development Bank. The Asian Development Bank has promised to provide $10 billion economic assistance within the next five years.
Pakistan will return the IMF loan component plus interest charges of $4.35 billion whereas the remaining amount of $1.65 billion shall not be paid back. The IMF has outlined in its report released the other day the contours of major condionalities of structural adjustments that have been attached to its 13th bailout package. The conditionalities include significant reduction in the public debt which may also include high interest bearing CPEC related and other Chinese loans; substantial increase in revenue from domestic sources by broadening the tax base; quarterly increases in power tariff; and implementation in totality the 27 points action plan of Financial Action Task Force (FATF) for strengthening anti-money laundering and counterterrorism regimes.
In the federal budget for the current year additional taxes of Rs.1.65 trillion have been levied. In the budgets for 2020-21 and 2021-22 more taxes of Rs.1.5 trillion and Rs.1.31 trillion shall be levied. The IMF has emphasised for taxation on the hitherto untapped potential sources of revenue generation instead of as usual treading the easy path of increasing the rates of existing taxes which was mainly adopted by the previous governments and up to greater extent by the PTI government as well in the current year budget.
The federal government alone cannot impose and collect taxes to mobilise resources of Rs.5.5 trillion this year and meet the revenue generation target of Rs.10.5 billion by 2023-24, which shows a cumulative increase of Rs.6.56 trillion in the next five years. It merits mention that total tax collection target for the last fiscal year was Rs.4.5 trillion but the government could collect 3.94 trillion, reflecting a short fall of Rs.600 billion. Of the new sources for direct taxation agriculture income can yield substantial tax revenue. However, agriculture is a provincial subject therefore direct tax on agriculture can be imposed and collected by the provincial governments. There seems no justification to keep exempted the agriculture income of big landlords from the levy of income tax.
The debt payment liability stands over Rs.3.4 trillion. PTI government had promised to gradually reduce the public debt by controlling the wasteful expenditures, revive few loss-making public sector enterprises and privitise the reaming ones. In all 56 state enterprises were on the privitisation list, of which PIA and Pakistan Steel Mill has been excluded. The state Bank of Pakistan report states that the borrowing of bleeding state entities has gone up by 36 percent to Rs.330 billion in the last fiscal year. The total debt liability of public sector enterprises has gone uptoRs.1.068 trillion.
The IMF condition of quarterly increase in electricity tariff is being met in letter and spirit but the much needed power sector reforms are yet to be initiated. Concrete measures are yet to be taken for the recovery of defaulted amount of billions of rupees from willful big defaulters on account of electricity bills.
As far the compliance of FATF action plan, robust administrative measures have been taken against anti-money laundering and curbing terror financing. However, the government feels handicapped to pass legislations to tackle the twin menace due to its razor thin majority in the National Assembly and PTI being a minority party in Senate. Some sections and clauses of “The Protection of Economic Reforms Act 1992” curtail the powers of the central bank for money movement and its transfer abroad. A few months ago federal law minister Dr.Farogh Naseem had hinted to bring amendment in this act. Let us hope that the present government will succeed in bringing structural reforms to steer the country out of the prevailing economic crisis by improving the macroeconomic indicators.