The head of the International Monetary Fund’s (IMF) mission in Pakistan claimed on Friday that the ruling Pakistan Muslim League-Nawaz “unilaterally decided” to reduce the budget deficit – in open contradiction with Finance Minister Ishaq Dar’s claim that the caretaker government, in conjunction with the Fund, had agreed to a Rs200 billion tax levy.
Speaking with The Express Tribune, IMF mission chief Jeffrey Franks said there had been dialogue about the possibility of measures to raise revenue. “In the end, in the absence of a programme with the IMF, the caretaker government chose not to implement any of the measures,” said Frank by telephone from Washington.
Franks said the IMF accepted the caretaker government’s decision, adding that the PML-N government took measures to reduce the gap between national income and expenditures.
In the last cabinet meeting, the finance minister had admitted that an estimated Rs200 billion in taxes that his government levied was one of the main reasons for skyrocketing inflation. But he blamed the caretaker government for the move, while providing a summary of revenue-increasing measures suggested by the PML-N government. Dar said that after former president Asif Ali Zardari did not approve the measures, the PML-N government was bound to honour the commitment made to the IMF.
Franks statement suggests that the government was trying to pass the buck to its predecessors, particularly as independent economists have criticised the government for levying indirect taxes in the budget for raising revenues instead of widening the tax net. They voiced fear that indirect taxes would fuel inflation – as can currently be witnessed. Analysts also doubt the credibility of Dar’s statement, arguing that if the caretaker government had finalised a decision, why would the PML-N government spend three weeks to finalise the programme?
The IMF chief also appeared dissatisfied with the performance of the Federal Board of Revenue (FBR). “There has been some progress in the annual growth in revenue collection but it is far from adequate and more needs to be done to improve collection and tax administration,” said Franks.
In six months, the FBR witnessed a 15% growth through the collection of Rs1.020 trillion in taxes -- far below the required growth rate of 28% to hit the Rs2.475 trillion tax target.
Franks also maintained that the IMF did not lower the Rs2.475 trillion tax target. “We deliberately pitched the projected collection at Rs2.345 trillion but the government should aim at its original target,” he said. He maintained that improvements in the areas of taxation and energy was a multi-stage process. “It is unrealistic to expect progress in just six months, as it will take a few years to fully implement reforms,” he explained.
Franks said the IMF was neither soft nor hard on Pakistan. “There is a fine line between being too tough or not to being tough enough,” he said, adding that the programme required flexibility in order to take into account the country’s circumstances. He said the adjustments Pakistan is making have to be made with or without the IMF programme.
To a question regarding the relaxation of a target of building foreign currency reserves to $2 billion by State Bank of Pakistan for the second quarter of the fiscal year, Franks said the IMF had to adjust the target after the first review as some of initial projections were not met. He said in the upcoming second review meeting of the programme, the IMF will consider if there is a need to review any targets again.
Franks said there were no specific concerns about data manipulation, either of the fiscal deficit or economic growth. “We have no reason to doubt the data of Pakistan,” he stated. He said the IMF was offering technical assistance to improve the quality of data, adding that the quality of quarterly GDP numbers will gradually improve.
Published in The Express Tribune, January 11th, 2014.
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