Govt to seek fiscal space from IMF
ISLAMABAD: Finance Minister Shaukat Tarin said, on Wed-nesday, that it would be impossible for Pakistan to come out from the International Monetary Fund (IMF) programme. He stated
this during the meeting of the Senate Standing Committee on Finance presided over by Senator Talha Mahmood to discuss the Finance Bill 2021.
He said that he did not agree to the IMF demand of increasing personal income tax to collect an additional Rs150 billion in the next fiscal year, and plainly told that he would not burden the people already paying taxes and the poor, and would explore other options to increase revenue collection.
Tarin said he would also seek fiscal space of one or two percent from the IMF to increase spending on health and education.
The minister explained that the financing gap of $29 billion had left no other option for the government but to go to the IMF and accepted their difficult conditions to increase discount rate, devaluation of exchange rate, and power and gas tariff increase.
“We have gone to the IMF because the country did not have dollars for repayment of past loans,” he said and added that $10 billion short-term borrowing was done by the previous government.
The finance minister said it would be impossible for Pakistan to come out from the IMF programme at this point in time.
Tarin said that the economic mess was already created when the present government came to power with a huge current account deficit and an overheating economy.
As a result of the measures taken under the IMF to deal with the overheating economy, there was a slowdown and decline in growth before the Covid-19.
However, Prime Minister Imran Khan’s smart lockdown policy provided support to the economy and the poor, he added.
Now the current account deficit is in surplus since many months, fiscal deficit is being contained, and the stimulus package provided to the industry during Covid-19 has started yielding positive results in industrial sector (large scale manufacturing) and exports, he added.
The minister said that now the strategy is to move on inclusive, sustainable and long-term growth to provide jobs to the people, and public sector development programme spending – Rs900 billion earmarked for the next fiscal year – would help bring about growth in the country.
The finance minister said that he was not in a position to state that growth would be sustainable or not because it would be known only after three to four years, whether the country is heading towards sustainable growth or not.
However, one thing that he can assure the committee that measures being taken in the budget would bring about inclusive growth as for the first time bottom up approach would be adopted, he added.
He said his first priority is to increase revenue, followed by increasing productivity of agriculture and industrial sector as well as exports of textile and IT sectors.
Additionally, he said that investment would be attracted to the CPEC, and the construction industry would be focused on employment creation.
Tarin identified power sector as a major challenge of the economy and the government would be dealing with the capacity payment issue as well as improve performance of distribution companies to privatise them.
Senator Sherry Rehman said that a ‘mini-budget’ has started rolling out following increase in petroleum prices and the IMF programme is being criticised because it was frontloaded that made the life of the common man difficult.
She said that the government was borrowing externally and domestically and added Rs13 trillion to the foreign debt.
Overall debt was increased 55 percent, she added.
In response to Senator Sherry Rehman’s question that this programme was being criticised because it was frontloaded, the minister reminded her that “you and I had [a] discussion on the IMF programme during [the] cabinet meeting in 2008 and I told you if you had other option then go and bring the money (dollars) from someone else”.
He said that the IMF programme does not happen with consensus because “you are borrowers and they are lender”.
The minister said that the present government was borrowing to repay the past loans.
He said that the debt-to-GDP ratio was decreased from 89 percent to 86 percent in one year of the present government when all other countries’ debt-to-GDP ratios were increased due to Covid-19.
In response to a question by Senator Faisal Subzwari, he pointed out that agriculture sector whose share in the GDP is 22 percent was out of the tax net and the provincial finance commissions have not been constituted.
Later, talking to media persons after the Senate Standing Committee on Finance meeting, Finance Minister Shaukat Tarin said that the 6th review of the International Monetary Fund (IMF) under the $6 billion Extended Fund Facility (EFF) would take place in September 2021.
He further said that discussion with the IMF are continuing and the next review will take place in September instead of July 2021.
The minister said he has already told the IMF that he cannot burden the people already paying taxes and would not increase power tariff.
Tarin had previously stated that the next review would take place in September, if not possible in July 2021.
Sources said the economic team led by Finance Minister Shaukat Tarin held various rounds of talks with the Fund over video links before the budget to bring budgetary measures within the ambit of the Fund programme.
They added that the power sector and revenue appeared to be the main issues in reaching an understanding with the IMF even though the government assured the fund that it would try to deal with these challenges through alternative plans.—ZAHEER ABBASI