IMF deal could be renegotiated

Published: September 5, 2019
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PHOTO: REUTERS

PHOTO: REUTERS

ISLAMABAD: The government on Wednesday did not rule out the possibility of renegotiating the $6 billion International Monetary Fund (IMF) deal amid an admission by the tax authorities, for the first time, that they may collect between Rs4.8 trillion to Rs5.2 trillion in taxes in light of existing economic realities.

The questions about renegotiating the IMF deal started surfacing after the IMF and the finance ministry’s projections about Pakistan’s last fiscal year framework went off the mark by up to 94%. The IMF agreement became effective just two months ago.

“It will depend whether we renegotiate the programme or not,” said Naveed Kamran Baloch, the finance secretary, while responding to a question by Pakistan Muslim League-Nawaz’s (PML-N) Dr Ayesha Pasha during the meeting of the National Assembly Standing Committee on Finance that met on Wednesday with Pakistan Tehreek-e-Insaf’s (PTI) Asad Umar, the former finance minister, in the chair

What the finance secretary meant to say was that he was not sure whether the deal would be renegotiated or not, said Umar in his summary of Baloch’s comments.

Umar demanded that the government should hold responsible for the person who “goofed up” and made inaccurate projections about the last fiscal year’s budget just 20 days before the close of the financial year.

The officials also held a video conference with the IMF’s Washington-based staff and discussed implementation on the programme.

The failure of the IMF and the finance ministry to make accurate forecasts for the macroeconomic indicators have eroded the base numbers, which were fed into the targets set for the ongoing fiscal year.

Former finance minister Dr Hafiz Pasha and former advisor to the finance ministry Dr Ashfaque Hasan Khan have already said that the new economic realities may force the government to renegotiate the $6 billion loan deal.

The standing committee took a detailed briefing from the finance ministry about the fiscal results of the previous financial year 2018-19.  The budget deficit in the last fiscal year stood at Rs3.444 trillion or 8.9 per cent of the gross domestic product (GDP) against the government’s revised estimates of 7.2 per cent of the GDP presented in the NA on June 11.

“Somebody in the system goofed up and he must be held responsible,” said Umar while urging the finance secretary to take action.

How could budget estimates go off the mark by Rs817 billion when the revised budget estimates had been presented before the NA just 20 days before the end of the last fiscal year, he questioned.

The finance secretary informed him that the supplementary grants had substantially affected the last fiscal year’s budget deficit.

The Federal Board of Revenue’s (FBR) targets went off the mark by Rs321 billion and other revenues by Rs276 billion even against the revised budget estimates, said Baloch. The gross receipts of the governments were lower by Rs596 billion against the revised estimates while the net receipts were short of the revised target by Rs531 billion, he continued.

The expenditures were also overshot by Rs286 billion during the last few days of the previous fiscal year.

PTI’s Faiz Ullah questioned the austerity policy of Prime Minister Imran Khan, which, according to him, was being flouted by government departments.

Expenditure department’s additional secretary, Dr Arshad, said that 80 per cent government departments observed austerity but there were massive slippages by 22 government entities including the civilian armed forces, passport office, the Election Commission of Pakistan and the overseas Pakistanis ministry.

The standing committee also instructed the Debt Policy Coordination Office to provide a break up of the increase in public debt due to currency devaluation and interest rate hikes during the tenures of the Pakistan Peoples Party and the PML-N.

The instructions were given after the government claimed that out of Rs7.6 trillion addition in the public debt, Rs3.02 trillion was because of currency devaluation.

FBR likely shortfall

The FBR also gave a briefing regarding the practicality of the tax collection target of Rs5.5 trillion set for this fiscal year.

“The Rs5.5 trillion revenues target is coming from the expenditures side and it is not based on how tax machinery is currently working,” said Dr Hamid Atiq Sarwar, Inland Revenue Policy Member of the FBR.

Our conservative figure is Rs4.8 trillion and economic modeling showed that we can collect Rs5.2 trillion, said Dr Hamid Sarwar. If a normal economy grows higher than the 2.9% annual rate, only then we can collect more than Rs5.2 trillion, he added.

He said that the Rs5.5 trillion was not a fictional number but to achieve this will require technological interventions. He maintained that the government will try to achieve the target through technological and administrative measures.

“We do not intend to bring mini-budget,” said Dr Hamid while responding to a question asked by Asad Umar.

The FBR needs a 44% growth rate to hit the Rs5.5 trillion revenues collection target.

The measures to generate additional revenue of Rs750 billion would help achieve 19% growth rate but the remaining 25% growth would have to come from administrative and technological interventions, said Seema Shakil, Member Operations Inland Revenue Service.

The Rs5.5 trillion is a historical target and very challenging at the same time, observed Dr Shaikh while addressing a press conference on the same day. He said that the country was passing through difficult times and needed money to pay the interest cost that is estimated to be around Rs2.9 trillion for the current fiscal year.

“The government will try its best but it is a very difficult target,” said Dr Shaikh, who is the PM’s aide on finance.

To a question, he said that the government will surpass the 2.4% projected economic growth rate target and the agriculture sector would grow 3.3%. He added that non-tax revenue would increase by Rs800 billion this year on the back of privatisation of liquefied natural gas (LNG) plants, license reviews of telecom companies and central bank profits.

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