IMF’s pat on the back

Govt now needs to look at its own weaknesses as well as the FBR’s role before seeking another waiver from the IMF

The IMF and Pakistan concluded the sixth review of the global lender’s $6.6-billion Extended Fund Facility (EFF), approved by its executive board in September 2013, moving a step closer to the release of the seventh loan tranche of about $518 million. In his statement, Jeffrey Franks, who led the IMF staff mission, complimented Pakistan’s fiscal and monetary policies and its reform programme while also stating that the country’s financial indicators remained sound. However, the statement also added that there are challenges as well, as tax revenues continue to remain below the indicative target.

The IMF acknowledged the government’s efforts in addressing structural impediments to growth but again emphasised the need for State Bank of Pakistan’s (SBP) autonomy, and took notice of falling tax revenues, the energy crisis and the privatisation or restructuring of state-owned entities, saying these were the areas that needed work. The government has had a good run with the IMF with the latter being appreciative of the reforms programme undertaken so far. The government was aided in its efforts by the drastic drop in global oil prices, which helped it mask the power surcharge while also levying additional GST on the sale of petroleum products to increase tax revenue. The GST levy was increased to 27 per cent from the previous 17 per cent but petrol prices still managed a drop of over 30 per cent in the past few months. However, the next phase of the reforms programme is probably the toughest for the government yet. It includes increasing tax collection — which seems to be impossible for the government to achieve without imposing draconian measures on people already paying taxes — and increasing the SBP’s autonomy. Time and time again, the government has been told to let go of the central bank. It has been asked to increase the tax machinery’s efficiency and increase the tax base instead of burdening the salaried class only. The FBR has continued to fail to complete its assigned tasks. Maybe the government now needs to firmly look at its own weaknesses as well as the FBR’s role before seeking another waiver from the IMF.

Published in The Express Tribune, February 7^th,  2015.

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