Govt ready to discuss rupee free float with IMF

Invites global lender for negotiations on ‘thorny' issues

ISLAMABAD:

Pakistan on Thursday invited the International Monetary Fund (IMF) to sit on the negotiation table to sort out all ‘thorny’ issues, including implementing a market-based exchange rate, as it considered again slapping withholding taxes on cash withdrawals and other banking transactions as part of a ‘mini-budget’.

The new planned discussion measures include further increasing the withholding tax rates on the sale and purchase of properties, according to sources.

These measures have been discussed during a meeting chaired by Prime Minister Shehbaz Sharif.

“The finance secretary has requested the IMF to send its mission to Pakistan as early as next week and shown the country’s desire to negotiate on all the disputed issues,” a senior minister told The Express Tribune.

The minister added that the discussions with the IMF would take place in light of the matters discussed on the sidelines of the recent Geneva conference.

Requesting anonymity, he briefly spoke on the issue after PM Shehbaz held a second meeting in the past 24 hours to finalise a roadmap to revive the IMF programme.

However, the PM’s Office did not issue a press statement.

It was expected that the government would at least make a formal announcement about its intention to revive the IMF programme.

During the meeting, the Power Division and Federal Board of Revenue (FBR) presented revised plans to the premier for taking measures to restore the global lender’s programme.

It was decided that the government would show flexibility but at this stage, the final position would not be shared with the IMF, according to another cabinet member.

Pakistan’s external sector position has become precarious with only $4.4 billion reserves left in its coffers.

There is also a realisation on the part of the government that abandoning the IMF route four months ago was a mistake and now an attempt will be made to revive the programme.

However, this realisation came only after  foreign nations refused a bailout to Pakistan without the IMF umbrella.

All the international creditors have advised the government to take the IMF path.

However, in the past, the global lender refused to send its mission to the country until the government took concrete corrective measures.

Now, it has been agreed that about six to eight difficult steps will be taken including implementing a flexible exchange rate and withdrawing sales tax exemptions available on imports and local sales.

Minister of State for Finance Dr Aisha Pasha on Thursday said there were “contradicting forces”.

“The government wants to insulate the ordinary citizens by putting less burden on them to as much extent as possible but the IMF programme is pulling us towards the other extreme,” she added – a few hours before the start of the global lender’s meeting.

She hoped that both sides would soon reach a middle ground.

“The government and the people should keep in mind that these are extraordinary times and we may have to take extraordinary steps,” she added.

However, it is not clear whether or not the IMF will send its mission to Pakistan without first observing the concrete measures taken by the government to restore macroeconomic stability.

According to a senior official, a roadmap had been agreed and in due course, it would be shared with the IMF.

There has been no final decision on the quantum of the mini-budget and the increase in electricity prices, as these matters will be decided during negotiations.

The IMF has demanded that Pakistan should implement a market-based exchange rate; free control over imports; withdrawal of tax exemptions on goods it brought into the country, exports and local supplies; and an increase in taxes as well as electricity and gas prices.

It is unlikely that the IMF will come to Pakistan without having anything concrete in hand.

A cabinet member said the country now had zero credibility and that was a matter of concern for the government.

Besides, the cabinet member added it was also a reason that the IMF was seeking  measures in advance.

The sources said a day earlier when PM Shehbaz asked whether or not the government should abandon its control over the exchange rate, his special assistant told him that the ministry was in favour of a strong rupee but the final decision would be that of the premier himself.

“The SBP [State Bank of Pakistan] is handling the exchange rate regime and you will see in a few days what kind of changes will be in it,” said Dr Pasha while responding to a question if Finance Minister Ishaq Dar would agree to an exchange rate policy.

“We want to put less burden on ordinary citizens to as much extent as possible but we are compelled to take some measures to revive the IMF programme,” Dr Pasha maintained.

“We want to impose those taxes that have the least direct impact on ordinary citizens,” she added.

The sources said the FBR had proposed to reintroduce the withholding tax on cash withdrawals from banks and their transactions.

Both these taxes had been abolished through the Finance Act of 2021 as part of a loan condition by the World Bank.

These taxes had led to reduction in the banking deposits, as people were reluctant to place their savings in them.

The deleted section 231A stated: “Every banking company shall deduct tax at, if the payment for cash withdrawal, or the sum total of the payments for cash withdrawal in a day, exceeds Rs50,000.”

Similarly, the deleted section 231AA read that every banking company, non-banking financial institution, exchange company or any authorised dealer of foreign exchange shall collect advance tax at the time of sale against cash of any instrument, including demand drafts, pay orders, call deposit receipts, special term deposits, special drawing right, real time clearing, or any other instrument of bearer nature or on receipt of cash on cancellation of any of these instruments.

According to another proposal, the government wanted to increase the withholding tax rates on the sale and purchase of properties -- the second time in the past seven months.

During the first half of the fiscal year, there was a 319% increase in the collection of the withholding tax on sale and transfer of the properties.

The FBR received Rs33.1 billion on the sale of properties during the July-December period of the current financial year.

However, the collection on account of purchase of properties dipped by 2% to Rs40.5 billion, indicating that people were not ready to invest because of the prevailing crisis.

The World Bank has also delayed approval of loans worth $1.1 billion and told The Express Tribune that its board would now consider a $450 million loan in the next fiscal year.

To a question, Dr Pasha replied that if the IMF did not accept Pakistan's stance and the country was left with no other choice, then the government would have to take the measures suggested by the global lender.

“If we have to go, we will go to the IMF,” she added.

Dr Pasha further said irrespective of political talk, the reality was that the kind of structural reforms the country needed would put a burden on everybody, with more on the upper class.

However, she added that the prime minister was not willing to increase the electricity prices.