Govt seeks IMF waivers amid flood-driven slippages

• Minister says more structural changes needed to achieve stability
• Fund insists on committed tax target

ISLAMABAD: Pakistan’s formal talks with the International Monetary Fund (IMF) on the 9th quarterly review of the Extended Fund Facility (EFF) have been delayed further amid authorities’ request for a series of waivers on performance criteria owing to flood losses and the Fund’s push for sticking to the committed tax-to-GDP ratio of at least 11pc.

“Circumstances are difficult but we have to remain in the IMF programme and make more structural adjustments,” said State Minister for Revenue Dr Aisha Ghaus Pasha while testifying before a parliamentary panel. The talks were originally due in the last week of October, rescheduled to Nov 3 and then kept on delaying following gaps in estimates by two sides.

A senior government official said that authorities were in contact with the IMF mission for sharing data on first-quarter performance (July-September) of revenues collection and expenditure overruns so that a formal quarterly review could be arranged in the last week of November. “Dates are not firmed up yet”, he said, adding that the two sides had agreed to complete all issues including exchange of data, gaps in targets versus performance, additional revenue and expenditure measures through virtual engagements so that “a crisp review is arranged which is not more than of 4-5 days”.

The official explained that the quarterly meetings typically reviewed the backward performance and forward-looking indicators and the overall macroeconomic framework going forward had been adversely impacted by floods. He said the revenue performance in absolute numbers was slightly better than the target. However, as a percentage of GDP, the revenue collection was estimated to be behind the target by 11pc.

Pakistan was behind target by almost 0.8pc of GDP mainly because of rebasing of GDP that enhanced the size of the economy. On the other hand, expenditures had exceeded targets in the first three months and the revenue collection trend appeared to decline because of import compression.

The official said Pakistan had generally requested several waivers on performance criteria but these had to be precisely worked out by the two sides at the staff level. He said a virtual meeting was also expected this week on the issue. Based on Pakistan’s specific slippages and demands for adjustments, the IMF mission would firm up its stance and take Pakistan’s case to the executive board for approval of the waivers.

Import contraction

Earlier, Chairman Federal Board of Revenue Asim Ahmad while testifying before the National Assembly’s standing committee on finance and revenue said that domestic taxes had performed well but the collection had suffered due to import compression. He said the domestic taxes had more than compensated for the losses on import taxes in the first quarter but there would be issues going forward as domestic taxes would also suffer because of foreign taxes.

Responding to a question by the chairman of the panel Qaiser Ahmed Shaikh over reports about IMF’s demands for additional revenue measures and concerns of the taxpayers for additional burden amid a slowing economy, the FBR chief did not confirm IMF demand but said the FBR was now focussing on administrative measures like those relating to smuggling and undervaluations to meet any revenue shortfall that may arise and not impose any new tax.

He said there were some challenges in courts relating to the recovery of taxes but so far the revenue collection was on track and any impact because of lower GDP or inflation would be looked into when there was an actual issue. He said the targets were set based on 4pc GDP growth rate and 16pc inflation. As such, the revenues should have increased by 21.5pc to Rs7.47tr. The growth so far had been about 16pc even though income tax was higher by 42pc in the first three months.

Meetings with lenders

Aisha Ghaus Pasha told the panel a Pakistan delegation visited the US recently and had very productive meetings with multilateral lenders including the IMF, the World Bank, the Asian Development Bank and so on and all of them were sympathetic towards Pakistan’s ground realities following floods and promised to support.

She said the IMF team and the government were examining the budget implications of floods as authorities had to immediately provide Rs120bn additional funds for flood relief through BISP support and national disaster management relief. “They are sympathetic and once numbers are agreed upon, the talks would move forward” on the 9th review, she said, adding that the floods had severely disturbed the macroeconomic framework and the IMF had asked the authorities to come up with all the specific expenditures that would be accommodated this year.

Based on these numbers, the IMF staff would give its response and negotiations on formal waivers would then proceed. She said the government had taken a series of structural adjustments in a short period but weaknesses in the economy had developed over the years. “Pakistan would have to make further structural changes to stabilise the economy.”

The committee was also briefed regarding tax targets achieved by the FBR.

There has been an increase in income tax collection, however, sales tax and customs duty targets have not been achieved. The main cause is import compression (of about 16.9 per cent till the end of October for the current fiscal year, Mr Asim said.

Additionally, the committee was also told that as of yet, 2.581 million tax filers have submitted their returns as opposed to 3.6m last year.

Published in goodnewsetc, November 16th, 2022

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