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IMF’s economy stabilization programme

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Pakistan is now on a high tax atmosphere for the future with Rs1.56 trillion extra taxes this year, succeeded by another Rs1.5trillion next year and yet another Rs1.31trillion the year after.IMF wants an increase in electricity tariff again in August this year and another Rs1.3trillio refunds from the provinces out of the National Finance Commission share. Pakistani authorities have pledged to accelerate FBR’s total tax collection from Rs3.94trillion past year to Rs5.5trillion this year and to Rs10.5trillion by 2023-24, a combined increase of Rs6.564trillion in five years. The tax-to-GDP ratio is predicted to rise 15.3 percent from 10.4 percent this year. The government was anticipated to see this increase came from broadening the base rather than raising tax rates. The net reserves are assessed to be unfavorable $17.7 billion at the end of June; they are forecasted to come in adverse $10.8billion by the end of the current fiscal year. On this foundation, the programme object is to take foreign exchange reserves from $6.824billion this financial year to $11.187 billion next year, identical to 1.4 months of imports present year to 2.2 months of imports following year. China currently is the largest holder of Pakistani debt. The Fund programme requires Pakistan to repay up to $37.359billion on its external debt by the end of the programme, of which approximately 40 percent at $14.682billio n will be paid to China. The government has also given a commitment to privatize at least seven small state-run organizations in the short run. Not later than September 2020 a complete remaining entities that will detail which ones are to be privatized and which ones are to be further improved upon. IMF stated that Pakistan would need to improve relating to SBP’s independence, debt limitation, money laundering, terror financing and so on. GST exemptions would complete soon, except for basic food and medicines. Other tax policy measures proposed further heightening taxation on real estate and on agricultural turnover. In this context the provinces will aim to accelerate collection of property and sales taxes. IMF advised that the performance of Pakistan’s AML/CFT regime must be immediately enhanced to maintain its exit from the Financial Action Task Force (FATF).
Pakistan agreed with IMF that SBP financing of budget deficit will be wholly erased and it has also been made a performance standard to support the new monetary policy structure. Pakistani authorities have also given a promise that electricity rates would be adapted on a quarterly basis and the second quarterly alteration will take place before end-August. The laws connecting to electricity and oil and gas regulators would be modified to see quick notification of tariffs concluded by them to see full cost recoveries.
The future seems dismal as there seems to the rise of phenomenal inflation during this government’s period in power. With details about the IMF deal appearing presently; it seems Pakistan has accepted to raise electricity tariffs on a quarterly basis. The detail from the IMF staff appraisal report on Pakistan shows little signal of where the pledged improvement in Pakistan’s economic environment will come from. It should be remembered that the IMF is not only executing its own agenda; it has applied the FATF action plan into its structural standard moreover. The IMF mission chief has lauded the government for taking earlier actions before the package to show its promise. It has also acknowledged that Pakistan’s oil-dependent economy remains highly exposed to shifts in global oil prices. Also one must understand that the increase in power generation costs is due to the decline in the value of the Pakistani rupee. The cost of producing electricity has increased in Pakistan due to devaluation, which means that any increases in tariffs might only counter the increase in the cost of producing electricity in the first place, rather than tackling the problem of circular debt. There is fear that at this critical situation Pakistan may not be able to bear the IMF programme for the next year and may not be alone 39 months. IMF programme acknowledges economic decline in the current year a high inflation of 13 percent and low GDP of 2.4 percent.
In the context of strict monetary and fiscal policies under IMF conditions, a rosy economic scenario is not being depicted. Fitch, a US-based global research house, Pakistan’s real GDP growth for fiscal year 2018-19 and fiscal year 2019-20 will be at 3.2 percent and 2.7 percent respectively. The reason for low growth is said to be the strict IMF conditionalities. The IMF considers Pakistan a country with stubborn conduct, often failing to finish its programmes. Most of the nations joining the IMF refuse to agree such harsh conditions as they want to have independency in decision-making to financial matters. A tiny African country like Botswana chooses independent advisers from public institutions and private foundation when it joined the IMF for structural facilities from 1961 to 1997. In the threatening rising debt, Mexico and Brazil were not able to serve their debts and announced a 90-day moratorium and requested renegotiation of payments. The investment and revenue exploited from new taxes were used to pay back the debt instead of solving social issues. In general IMF for stabilization of the economy has led to acceleration in taxes, gas and electricity bills and inflation. Besides working honestly and sincerely with IMF it is time for government of Pakistan to look for alternative ways and means to tackle the economic scourges country is facing and find a proper treatment.