Dar says no to IMF diktat

ISLAMABAD:

 

What appears to be an end of a thorny four-year relationship, Finance Minister Ishaq Dar on Thursday refused to take the International Monetary Fund’s advice on the issue of giving tax exemptions while terming its attitude “not professional”.
In a strongly-worded response to the IMF’s statement about the new budget and the tax amnesty scheme, Dar came down hard on the global lender. He appeared before the Senate Standing Committee on Finance and criticised the IMF attitude since October last year.

“First, they want us to become Sri Lanka. Only then will they negotiate with us,” said a visibly perturbed minister. He went on to say that Pakistan was a sovereign country and we would not accept everything that the IMF says.

Dar made a sudden appearance and recorded his views on the IMF programme at the meeting that now seems meeting its unpleasant end.

However, it appears that the main coalition partner, the Pakistan Peoples Party (PPP), is not backing the government’s stance about the IMF. The PPP’s former finance minister, Senator Saleem Mandviwalla, said on Thursday that he was in favour of completing the 9th review of the IMF programme.

Pakistan had signed the $6.5 billion programme in July 2119. But the programme suffered serious setbacks from the beginning and got derailed four times. As a result, the review schedules were also amended every time. Still, the programme is going to end on June 30th with $2.6 billion remaining undisbursed.

The finance minister said that it will be a “sad story, if Pakistan does not receive the remaining over $2 billion”.

A day earlier, the IMF said that the proposed budget missed the opportunity to broaden the tax base, terming the new tax amnesty scheme a “damaging precedent”.

In a first official reaction to the expansionary Rs14.5 trillion budget, Esther Perez Ruiz, the resident representative of the IMF, said that the amnesty scheme is also against the good “governance agenda” and against the $6.5 billion programme objective.

Under the IMF programme, Pakistan cannot give any type of tax amnesty scheme.

Dar said that the IMF was against giving tax exemptions. “Small tax exemptions are pricking them,” said Dar while insisting that the government had to give the breaks to revive the economy. The total cost of the tax exemptions is just Rs24.8 billion, he added.

He termed the delay in completing the 9th review unprofessional. “Certainly, not professional reasons for not agreeing to our budget,” said Dar.

He said that the IMF has also raised observations about the exchange rate regime and the external financing requirements. “We are a victim of geopolitics," he added,

Pakistan met every condition of the IMF, including securing external financing and sharing the budget 2023-24 details.

“Other conditions were completed as well,” he said. “I do not understand what the IMF wants and why it is not proceeding with the staff-level agreement.”

Dar narrated his side of the story since October last year when he became the finance minister but the IMF programme got derailed. Dar replaced Miftah Ismail in the last week of September.

“I invited them to send a mission in October but it took three months before a mission arrived at the end January”, said the minister. He said that during the review talks, on the basis of a projected $7 billion current account deficit we had agreed to $6 billion new external financing.

Now our current account deficit is projected below $4 billion and the IMF is still insisting on a $6 billion loan. He said that Pakistan has made a $3 billion arrangement from Saudi Arabia and the United Arab Emirates. The World Bank has also indicated giving a $450 million loan under the RISE-II programme but it is contingent upon the IMF good health of economy certificate, said Ishaq Dar.
Dar made it clear that he did not make the new budget in consultation with the IMF. The budget was shared only when the prime minister committed to the managing director of the IMF.

“I did not want to share the budget without the 10th review but the PM is the PM,” said Dar.

Speaking about the amendments undertaken by the previous government to appease the IMF, he added that the State Bank Amendment Act 2022 was intolerable. “The SBP is a Pakistani institution and does not belong to any global institution," said the finance minister.

PPP reacts

Meanwhile, in a statement sent to The Express Tribune, Chairman Standing Committee on Finance Senator Saleem Mandviwalla emphasised the need to complete the IMF programme.

“Delay in reaching an agreement with IMF is adding to the difficulties and we clearly believe the revival of the IMF programme is essential for receiving loans from international financial institutions, maintaining some confidence of investors and lenders about Pakistan’s progress towards stabilization of balance of payments”, he said.

Senator Madviwalla, who belongs to the PPP, further stated that a review of the budget is possible – especially the expenditure side and increase in BISP are good ideas. He said that at the same time taxing the well-off through showing progressivity in tax is also a good suggestion.

“We strongly recommend that the 9th review conditions set with the IMF can be achieved to ensure release of funds with Pakistan’s reserves falling to nearly $ 3 billion”, said Senator Mandviwalla.

“We also believe Pakistan should be considering contours of a new program soon”, he added.