IMF calls for provincial role in fiscal affairs

ISLAMABAD: Pakistan requires an enhanced role of provinces in fiscal affairs in the aftermath of the 18th Constitutional amendments and the provinces are going to impose the Agriculture Income Tax (AIT) with the approval of respective legislative bodies, says the IMF’s Resident Chief Esther Perez Ruiz on Thursday.

She said that the post-Standby Arrangement in July 2023, the confidence in policymaking has improved with inflation plummeting to its lowest level in three years, international reserves more than doubling and the economy on the course of improvement. Pakistan has managed to revive economic and financial stability over the past fiscal year despite the challenging external environment and destructive impacts of the 2022 floods, she said.

The Sustainable Development Policy Institute (SDPI) hosted the IMF Resident Representative for Pakistan, Esther Pérez Ruiz, at a discussion on “Raising Pakistani Living Standards and Economic Resilience” here at the SDPI Conference Hall.

Ruiz said to achieve the prime objective of a better life for the masses, a goal the IMF merrily supports, demands Pakistan to shift its development model away from state intervention in economic decisions entailing protectionism, incentives, subsidies and tax concessions primarily for privileged groups.

Ruiz underlined that the country needs policies that unclutter the economy, promote competition, reduce trade barriers and streamline regulatory burdens to facilitate the expansion of new and more productive activities and exports. She also supported reforms in the public sector to enable a more efficient role in generating the resources needed to improve public services, build human capital and upgrade infrastructure more fairly and sustainably. She added that the new IMF Extended Fund Facility envisioned these indigenously developed priorities of the government in its multi-year reform programme.

The EFF has endorsed the government’s commitment to achieving resilient and inclusive growth by protecting real incomes, providing affordable energy and implementing social protection schemes to safeguard the most vulnerable populations. These initiatives also focus on advancing energy sector reforms, reducing power purchase agreement costs, promoting tax fairness among wealthier individuals and previously untaxed economic sectors, enhancing revenues to address development needs, alleviating indebtedness and decreasing regressive taxes

“Enhancing the role of provinces in fiscal affairs (in line with the 18th Amendment) will help balance resources and spending programmes between federal and provincial governments with a twofold aim,” she said. International evidence suggests that investing in people through basic healthcare, education, training programmes and fostering entrepreneurship by reducing the state’s role in economic decisions can significantly enhance growth potential and inclusiveness, the IMF Resident Representative said.

Earlier in his opening remarks, Dr Abid Qaiyum Suleri, Executive Director SDPI, said the IMF Resident Representative in her opinion built the case on the EFF as a facility to raise Pakistani living standards. Suleri mentioned that Pakistan is reviving economically as macroeconomic indicators are improving and the Saudi investment and business delegation is visiting Pakistan. “Macroeconomic stability should not bear the cost of microeconomic stability of lower and lower middle income earners,” he said, adding that it was a challenge for the government to ensure a balancing act to manage microeconomic and macroeconomic stability indicators.