IMFs’ sane advice
The International Monetary Fund (IMF) has asked the government to raise more revenues and pay greater attention to the structural reforms, especially regarding the state owned enterprises, to put the economy on a sound footing. A visiting delegation of the fund led by Herald Finger, IMF Mission Chief for Pakistan, held detailed meetings with the senior officials of Ministry of Finance and Federal Board of Revenue (FBR) as they entered the last leg of their week long engagements. The fund representatives emphasised the urgent need of bringing the non-filers into the tax net and strictly curbing the scourge of tax evasion.
The government in its amended finance bill generously rewarded the non-filers by allowing them to buy highly valuable assets and expensive vehicles instead of initiating measures to bring them under the tax net. The previous government did not allow them to acquire assets as punitive measure. The talks will now enter the policy area where Finance Minister is expected to lead the government side in the negotiations with IMF delegation.
Media reports suggest that the Washington based lender’s staff mission expressed reservations over the stereotype revenue measures of the supplementary budget. They rightly argued these measures are not enough to keep the fiscal deficit within the target of 5.1 percent. The past experience during the civilian government since 1989 and onward has amply confirmed that burdening over and over the people with the indirect taxes have not reduced the fiscal deficits. This what the IMF is telling to the new government. The regressive indirect taxes had negatively impacted the productive capacity of the economy further compounding the economic woes.
On the external front the IMF advised the government to keep an eye on the rising oil prices in the international market and global economic conditions that are not encouraging for exports. The lopsided and kick-backs motivated thermal power generation policy pursued during 1994-96 and 2015-17 has increased the quantum of imports of furnace oil and diesel. The oil import bill is well over $ 5 billion and the new government is compelled to request Saudi Arabia for import of oil on deferred payments.
In the past successive governments deliberately did not implement the IMF suggested structural reforms because they protected the interest of feudal and mercantile classes at the cost of poor people of the country. Tax base was not expanded through direct taxes and privatisation of hemorrhaging public sector enterprises, which devour Rs. 1100 billion of taxpayers’ money, was put on hold. The losses of PIA alone are R.350 billion. The PTI government plans for structural reforms, including privitisation of bleeding public sector corporations—PIA, Pakistan steel mill, two gas utilities, OGDCL and PPL-and power distribution companies. The authorities have shared with the IMF the latest data on power sector arrears, non recoveries, refund held by tax authorities on account of GST, accrued mark-up on non-payment on the one side and loans repayment and roll-overs on the other side and reasons for delay in tariff notification due to litigation.
The government has also briefed the mission about five years $ 45 billion strategic trade policy framework ending 2023 to be presented to the federal cabinet over the next couple of weeks. It was also appraised about the measures of access to raw material and concessional energy input tariff to export industries. Amid decline in revenue IMF delegation was assured that tax collection would soon get a boost on offshore assets of Pakistanis by utilizing the information received from multilateral tax conventions. But the government has not yet taken measures to levy income tax and wealth tax on wealthy people in the country the data of which is available with the FBR. The agriculture income is treated like holy cow by taking shelter behind the pretext that agriculture is a provincial subject.
The new government will have to take tough decisions to set the direction of economy right by expanding the revenue base through direct taxes and offloading the burden of huge losses incurring public sector entities. The current account deficit continued to rise in the first two months of the current fiscal year. The net result is a decline in foreign currency reserves by $ 800 million compared to the first two months of last fiscal year. There seems no other alternative to the drastic structural adjustment reforms which will offend the powerful political and business elite, but the bitter pill is the only menu on the table.