ISLAMABAD: While revising downward the Federal Board of Revenue (FBR) tax collection target from Rs2,810 billion to Rs2,691 billion, Pakistan and the International Monetary Fund (IMF) on Thursday successfully concluded the Sixth Review, which will pave the way for the release of next tranche of $518 million under the $6.67 billion Extended Fund Facility (EFF). “Both the sides concluded to keep the budget deficit target at 4.9 percent of GDP for the current fiscal year and it will be achieved through combination of revenue measures and expenditure adjustments despite revising the FBR target to Rs2,691 billion,” Federal Minister for Finance Senator Ishaq Dar confirmed to The News from Dubai here on Thursday night. Ishaq Dar said that there would be no change in the tariff of gas and electricity in the coming months. Pakistan and the IMF held the review talks in Dubai to complete the Sixth Review under $6.67 billion bailout package. After the replacement of Jeffery Franks, the IMF has appointed Herald Finger as the new mission chief of the IMF for Pakistan who participated in the review talks. The sources said that the expenditure overran because of the security situation. The compensation for the IDPs might be considered as one of the reasons for extended expenditure by the IMF that resulted in an agreement between the two sides to keep the budget deficit unchanged. The FBR’s revenue target was revised downward by Rs119 billion, bringing it down from Rs2,810 billion to Rs2,691 billion for the current fiscal year. The FBR had so far collected Rs1,337 billion in the first seven months registering a growth of just 12 percent compared to the same period of the last financial year. The FBR will have to collect Rs1,354 billion in the remaining five months (Feb-June) in order to achieve the revised target of Rs2,691 billion for the current fiscal year. Alone on the front of decrease in POL prices, the FBR argued that it faced losses of Rs68 billion out of which the government made plans to recover Rs28 billion by raising the GST rate twice, from 17 percent to 27 percent, but the remaining losses stood at Rs40 billion. Independent economists were forecasting Rs2,650 billion maximum revenue collection for the FBR for the current fiscal year. The press statement issued by the Finance Ministry on Thursday stated that Minister for Finance Senator Muhammad Ishaq Dar said Pakistan and IMF had successfully completed the negotiations on the Sixth Review under the three-year Extended Fund Facility (EFF) programme for an amount of $6.64 billion. This will enable the IMF to go to their board for the release of seventh tranche of about $518 million, he announced. The minister said that completion of the Sixth Review was indicative of the government’s commitment in implementing structural reforms in the areas of taxation, energy, monetary and financial sectors and public sector enterprises. “Economic activities continue to improve. We are expecting better growth from agriculture sector, particularly from wheat and cotton crops despite the flood this year,” the minister added. The minister highlighted the areas on which the IMF mission was briefed during the course of almost seven-day talks. He said that stable growth in workers’ remittances and low oil prices helped contain the current account deficit in the balance of payments. Successful issuance of international Sukuk and multilateral inflows enabled the foreign exchange reserves of the State Bank of Pakistan (SBP) and scheduled banks cross the $15 billion mark on December 31, 2014. Similarly, CPI inflation continued its declining trend and was clocked in at 3.9 percent year on year in January 2015. The average CPI for July-January stood at 5.77 percent compared to 8.8 percent for the same period last year. Performance of the banking sector remained robust as earnings surged, asset quality improved and solvency strengthened. The minister affirmed that the budget for FY 2014-15, consistent with the programme objective, was approved. “We are well underway to achieve the fiscal deficit target. In the first half of FY 2014-15, we overperformed on the fiscal targets agreed with the IMF,” he remarked. The minister, while concluding his remarks, said, “We have successfully completed the negotiations of the Sixth Review. This has been a team effort. Our challenges remain numerous but we are determined that we will remain on track in achieving the objectives of the programme in line with PML-N’s 2013 election manifesto.” The minister complemented Jeffrey Franks, the Mission Chief of IMF, and his team for an outstanding job they had done in conducting the Sixth Quarterly Review. Jeffrey Franks lauded the performance of the government in achieving various benchmarks and economic targets. He said there was an overall improvement in Pakistan’s economy but emphasised that efforts should be made towards building up forex reserves. He also called for more efforts aimed at autonomy of the SBP. According to an IMF statement issued on Thursday, an IMF staff mission, led by Jeffrey Franks, visited Dubai from January 26 to February 5, 2015 to conduct discussions on the Sixth Review under Pakistan’s SDR 4.393 billion (about $6.6 billion) Extended Fund Facility (EFF), approved by the IMF’s Executive Board on September 4, 2013. The mission met Minister for Finance Ishaq Dar, State Bank of Pakistan (SBP) Governor Ashraf Wathra and other senior officials. At the conclusion of the mission, Mr Franks issued the following statement: “The mission and the Pakistani authorities have reached staff-level understandings on a Memorandum of Economic and Financial Policies on the sixth review of the programme which upon approval by the IMF’s management, will be discussed by the IMF Executive Board. Upon completion of the review, SDR 360 million (about $518 million) would be made available to Pakistan. “Economic activity and the external position continue to improve driven by prudent monetary and fiscal policies and helped by lower oil prices and robust remittances. Financial sector indicators remain sound. In fiscal year (FY) 2014/15, real GDP growth is expected to reach 4.3 percent with headline inflation remaining low. The external current account deficit will narrow to around 1.2 percent of GDP despite a decline in exports driven by lower cotton prices and real exchange rate appreciation. These developments along with strong capital inflows and the recent Sukuk placement have allowed further strengthening of the foreign exchange reserve buffers which reached $10.5 billion at end-December 2014. “The authorities’ reform programme remains on track. All end-December 2014 quantitative performance criteria were met as well as the indicative target on transfers under the Benazir Income Support Programme (BISP). The end-December structural benchmark for this review on submission of Anti-Money Laundering (AML) legislative amendments was also met. “Fiscal performance has been generally good. The budget deficit for end-December was significantly below the programme target. However, tax revenues were below the second-quarter indicative target by about 0.1 percent of GDP due in part to legal challenges to some revenue measures and to the fiscal effects of the plunge in international oil prices. Fund staff supports the authorities’ efforts to address this shortfall with new revenue measures. “The sharp drop in oil prices represents an historic opportunity to reduce the vulnerability of the economy by building stronger fiscal and external buffers, and to address some of the longstanding imbalances in the energy sector while still reducing consumer costs. We strongly support the authorities’ efforts in this regard. While progress has been made in addressing the structural impediments to higher and more inclusive growth, important challenges remain, such as steps to enhance the independence of the SBP, permanently resolve energy sector deficiencies, complete the legal framework for deposit insurance, and privatise or restructure public enterprises. “The mission thanks the authorities and technical staff for their cooperation and reaffirms the IMF’s support to the government’s efforts to implement their economic reform programme.”
