Tough decisions must for revival of $6 bn IMF plan

ISLAMABAD: After losing the opportunity to revive $6 billion stalled IMF program after approving the budget 2020-21, the government will have to take three tough decisions including hiking power tariff, eliminating tax exemptions/ slapping more taxes and approving legislations to grant autonomy to regulators for reviving the IMF programme.

The IMF has not approved the second review of the 39-month Extended Fund Facility worth $6 billion since February this year due to disagreement over additional tax measures and increase in electricity prices.

The IMF has so far released $1.44 billion to Pakistan in two instalments. The country bagged the first loan installment of around $1 billion in July, 2019. The second tranche of $452.4 million was received on December 26.

Amid rising political temperatures after announcement of protest rallies by the Pakistan Democratic Movement (PDM) from next week in different parts of the country, it will not be easy for the PTI-led regime to take such tough decisions having far-reaching political repercussions.

Official sources conceded that the government was willing to revive the stalled IMF programme but it was finding out a strategy where tough decisions could be implemented in phases in order to avoid facing public wrath.

When PDM rallies in different cities are going to occur, the government will have to take a decision either to raise power tariff for reviving the IMF program or discontinue it.

However, the Ministry of Power is going to suggest to Prime Minister Imran Khan and his cabinet to pass on the burden of raising electricity tariff in line with quarterly adjustments within this ongoing month, as internal meetings are underway to make renewed efforts to convince the IMF for passing on partial increase in electricity tariff.

It is yet to see how much the government decides to raise the power tariff. However, top official sources confirmed that without increasing the power tariff on quarterly basis, the IMF program would not be revived.

“The message is loud and clear that the government will have to take a decision on increasing the power tariff soon” said the official.

The ECC had approved raising the power tariff by Rs1.61 for consumers using 200 units per month but the cabinet blocked this move. Now the Ministry of Finance and Ministry of Energy have devised a unified strategy to brief the premier and cabinet probably

next week in order to get approval for raising the tariff.

On the revenue side, the IMF’s technical mission held a virtual meeting with the FBR high-ups on Friday. After the induction of Special Assistant to the Prime Minister (SAPM) Dr Waqar Masood, two meetings were held with the IMF to finalize future roadmap with the context to revive the stalled IMF program.

The FBR has been assigned to analyze its capacity and how much tax collection seemed possible in the whole financial year against the desired target of Rs4963 billion. The FBR had so far netted Rs1004 billion in the first quarter (July-Sept) period of the current fiscal year and surpassed the target by Rs44 billion. However, tax experts believed that the FBR required Rs1,000 billion more to fetch Rs4,963 billion because the FBR had collected Rs3,980 billion in the last fiscal year.

If the FBR collected Rs44 billion additional in first quarter how it will be possible to fetch Rs956 billion more in remaining nine months. Keeping in view this prevailing situation, the FBR will be required to devise a strategy on two accounts either to abolish more tax exemptions and secondly take additional revenue measures to keep the budget deficit within envisaged limit of 7.1 percent of GDP for the current fiscal year.

Dr Waqar Masood is considered a workaholic former bureaucrat who is competent enough to be known as technocrat. He has been assigned by PM Imran Khan to devise a roadmap for broadening of narrowed tax base.

Although the number of return filers had gone up to 2.7 million, the salaried, fixed income groups and small numbers of businessmen showed taxable income and a large number of return filers showed nil income and they preferred to file the returns to get themselves registered with the tax machinery.

The third major condition is that Pakistan will have to make progress in showing commitment to pass through legislation for granting autonomy to the State Bank of Pakistan (SBP). Many critics sternly oppose the proposed amendments to the SBP Act 1956 arguing that if such amendments were approved, the central bank would not remain answerable to the prime minister. Some other measures for strengthening other regulators are also part of the IMF programme.