Miftah sees first breakthrough with IMF

Finance minister says deal with global lender expected in day or two

ISLAMABAD:

Finance Minister Miftah Ismail hopes to seal a deal with the International Monetary Fund (IMF) for the revival of the $6 billion bailout package in a day or so, after the government considered increasing tax target to around Rs7.45 trillion and adjusted some expenses.

The finance minister told The Express Tribune on Monday that the fiscal framework with the IMF had almost been finalised. “God willing, the IMF deal will be finalised in a day or so,” he said, while responding to a question.

“The understanding on the fiscal framework should give a positive signal to the markets and we should also expect a positive statement from the IMF in couple of days,” the minister said after attending a meeting of the Senate Standing Committee on Finance.

The minister told The Express Tribune that the monetary targets would now be agreed with the IMF by the central bank, which would eventually pave the way for reaching an understanding on the Memorandum for Economic and Financial Policies (MEFP).

“Once the MEFP is agreed upon, both the sides will announce a staff level agreement in the next few days,” the finance minister said. The IMF has not yet shared the MEFP draft with Pakistan, but it is expected that the crucial document may be shared before end of the week.

The government is running against the time and has to conclude a deal with the IMF before June 30, the last day of the current fiscal year, with a view to incorporating the changes in the Finance Bill-2022 and the Annual Budget Statement-2022-23.

Reports of a delay in reaching a deal with the IMF are taking their toll on the country’s markets. On Monday, the Pakistani rupee kept shedding its weight against the dollar and closed at Rs210 to a dollar in the interbank.

Sources told The Express Tribune that Pakistan officials virtually held a lengthy round of negotiations with the IMF officials on Sunday and responded to the concerns expressed by the global lender.

Pakistan has now conceded significant ground to the IMF and also reached out to the United States on Thursday for support. The IMF that earlier remained inflexible appeared giving some positive signals during past two days.

There is a possibility that the pensions budget may be increased to Rs570 billion as against Rs530 billion announced in the budget speech. But Finance Ministry officials believed that the Rs530 billion pension bill figure was still the realistic one.

Also read IMF hands list of demands for loan revival

 

The sources said that some major adjustments were also being made in the fiscal framework. The federal budget that the finance minister unveiled on June 10th had been made on the assumption of Rs186 to a dollar on average, which made the whole exercise unrealistic.

The IMF has asked Pakistan to set next fiscal year’s FBR tax target at Rs7.45 trillion to bridge gap in the fiscal framework, according to sources. They added that the FBR showed willingness to increase the target to Rs7.255 trillion but that was not sufficient to achieve overall primary budget surplus goal. If agreed, the Rs7.45 trillion target will be a major adjustment in the proposed budget.

During the next fiscal year 2022-23, the sources said, the rupee might depreciate by 17% over the previous assumption, which should provide a major impetus to the new revenue collection target. The double-digit inflation would be another source to increase the tax collection.

On the assumption of around 17% currency devaluation, on average, over the previous assumption, the next fiscal year’s tax collection target is being set at Rs7.45 trillion, the sources continued.

Finance Minister Miftah Ismai had already announced a Rs7 trillion tax target in his budget speech, which the government is now willing to increase by another Rs450 billion. The government expects that the rupee devaluation should give a boost to the tax collection.

If the Rs7.45 trillion tax target is agreed, the Federal Board of Revenue (FBR) will have to show an increase of 24% or Rs1.45 trillion in the next fiscal year. The IMF sees major surge in inflation rate but the Finance Ministry is sticking to average inflation rate target of 11.5% for the next fiscal year.

The custom duties collection target, which had been set at Rs953 billion in the budget, may go up by Rs100 billion. The next year’s custom duties collection target can be around Rs1.05 trillion, according to the sources.

The sales tax collection target of Rs3.08 trillion could also go up to nearly Rs3.3 trillion. The remaining adjustment will be made in the income tax collection target that has earlier been announced at Rs2.55 trillion, according to the sources.

Some additional revenue measures will be unveiled to make the new tax target realistic, said the sources, including passing on some burden to the salaried class.

While responding to a question from a journalist about levying more taxes on the people, Miftah Ismail said that it depended on the kind of people they were. “If they are well-to-do, then taxes will be applicable but the poor will be provided relief,” he said.

He maintained that people earning up to Rs1.2 million a year will be protected from further increase in the tax but those above this threshold would see increase in their tax rates. Earlier, the minister had said that he would protect people earning up to Rs2.4 million per annum.

The IMF had also issues with the projected Rs800 billion provincial cash surpluses that were not supported by the budgets announced, so far, by three provincial governments, excluding Balochistan.

The cumulative cash surplus figure by the three provincial governments is only Rs92 billion, as Sindh has given a deficit budget, while Khyber-Pakhtunkhwa government opted to announced a balanced budget.

The federal government is targeting to secure the passage of the budget 2022-23 from the National Assembly on by June 28.