Impasse with IMF over PM’s tax amnesty

Premier’s Rs246 billion relief package also a hurdle

ISLAMABAD:

Pakistan on Friday could not break its impasse with the International Monetary Fund (IMF) over Prime Minister Imran Khan’s tax amnesty scheme and his Rs246 billion relief package.

However, the finance ministry said the global lender had agreed to extend talks for another day. The negotiations could not be concluded by its original schedule that ended on Friday, as Islamabad was requesting one month to reconcile matters, sources told The Express Tribune.

A scheduled virtual meeting between Finance Minister Shaukat Tarin and the head of the IMF team, Nathan Poter, also could not take place on Friday, indicating that both sides were struggling to even come closer to a position where some understanding at the top level might be achieved. “The 7th review talks will now continue on Monday [March 14],” said Finance Secretary Hamid Yaqoob Sheikh.

He said the finance minister might also meet with the IMF team on Monday. The finance secretary dispelled the impression that these were not review talks. “Both sides are holding the 7th review of the IMF programme.” According to the original schedule agreed between Pakistan and the IMF, the review talks were planned to be held between March 3 and March 11.

During this period, Tarin was twice scheduled to meet with the IMF team. However, only one meeting was held on Wednesday, a day after the originally scheduled time. The final session between Tarin and Porter had been set for Friday evening but it did not take place either. “We do not have anything meaningful to tell the IMF after the announcement of the relief package,” an official privy to these talks told The Express Tribune. Sources said the government’s strategy so far was to keep buying time from the IMF.

However, any further delay would mean that Pakistan would not be able to avail the complete $6 billion package, as the country had to complete three more reviews from now till September. The sources said that there were three major stumbling blocks, the PM’s Rs246 billion relief package, the asset whitening scheme and the way forward to rationalise the personal income tax rates of individuals, as the IMF sought to cut the number of slabs from 11 to 4.

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They said the energy sector’s circular debt was also above the threshold agreed with the IMF and the tax refund arrears were also higher than the limit set by the global lender. Under the IMF conditions, Pakistan can neither give any more tax amnesty scheme nor was it entitled to hand over tax breaks to industrialists. The IMF saw the completion of the sixth review of the programme in January as a major step towards normalisation of policies for addressing external and fiscal sector imbalances.

The PTI-led government agreed with the IMF to implement a prudent macroeconomic framework in January this year in return for the revival of the stalled loan programme. The government and the central bank have implemented most of the IMF conditions concerning monetary and fiscal targets agreed for end-December 2021. However, they are in serious violation of the condition of “not to grant further tax amnesties”. They are also in violation of not intervening in the exchange rate market.

Subject to timely conclusion of the talks, the IMF board may take up Pakistan’s request for approval of over $960 million in loan tranche before the end of next month. Approved in July 2019, the IMF has so far disbursed $3 billion out of the $6 billion package, as the programme has remained derailed for almost half of the period. Just one month after its approval, the programme suffered a setback when PM Imran announced a Rs246 billion relief package without caring for its implications for the review talks.

As against the requirement of showing Rs25 billion primary budget surplus, the sources said, there could be a primary budget deficit of over 1% of the gross domestic product (GDP) or Rs665 billion even at the revised base of the economy. The Express Tribune reported this week that as against the budget estimates, the federal budget deficit was now projected over Rs4.3 trillion for this fiscal year, roughly Rs318 billion higher than the target despite slapping a mini budget.

Two days ago, the finance minister had said Pakistan conversed with the IMF about the PM’s relief package only to the extent of what was necessary. Tarin had added that the IMF should not have problems with the relief package, as Pakistan was neither increasing its fiscal deficit nor taking any loans to provide relief to the people. He said the government was able to announce subsidies on the back of improved revenue collection.

However, he had admitted that as against the IMF requirement of having nominal primary budget surplus, there could be a primary budget deficit of half a percentage of the GDP by the end of the current fiscal year. Tarin had said the PM’s relief package would cost an additional Rs110 billion because of a reduction in fuel prices and the government would bear a sum of Rs136 billion by reducing the electricity prices by Rs5 per unit, bringing the total impact to Rs246 billion.