IMF wants SBP Amended Act approved from Parliament

ISLAMABAD: The International Monetary Fund (IMF) has shared a draft of the Memorandum of Financial and Economic Policies (MEFP) with the Pakistani authorities and placed approval of the SBP’s amendment act 2021 from parliament as part of condition for the completion of the sixth review under the $6 billion Extended Fund Facility (EFF) programme.

The hiking of gas tariff with effect from July 1, 2021 has also been part of the IMF programme. The power tariff will further be increased in the months ahead. The government has also agreed to accelerate the stalled privatisation programme and renewed efforts will be made to privatise certain state-owned entities. The government has also agreed to continue the fiscal consolidation but the budget deficit target exceeded slightly than the envisaged target of seven percent of the GDP for the current fiscal year.

The government has agreed to fix the FBR’s target of Rs6,000 billion for the next budget and it will be achieved through the elimination of income tax and sales tax exemptions. The tax rates will be revised upward in some cases. The cabinet has approved the Tax Reform Amendment Bill 2021 for abolishing 80 corporate income tax exemptions. There was one proposal related to the General Sales Tax (GST) in the proposed Tax Reform Bill 2021 but it was excluded on the recommendation of the cabinet ministers. Now the GST exemptions would be withdrawn in the coming budget through the Finance Bill 2021.

“We have also committed to lay down amendments to the NEPRA act before parliament,” said official sources.

Minister for Finance Dr Abdul Hafeez Shaikh and Governor SBP Dr Raza Baqir would sign the Letter of Intent (LoI) and Pak authorities would sign LoI after broader agreement on MEFP after the chairman Senate elections.

It was quite interesting that the IMF placed approval of SBP amendment act 2021 as part of its conditionalities. Earlier, submission of the bill was made part of condition but now the IMF entered into the domain of parliament’s sovereignty, binding authorities to the enactment of SBP’s amendment act 2021 with the approval of both Houses of parliament.

The federal cabinet had granted approval to the SBP’s Amendment Bill 2021 with the main objective to target inflation and doing away with the aim to promote GDP growth.

It was interesting to witness that how hearts and minds got changed in favour of the SBP amendments by the dwellers of Q Block (Finance Ministry) because it was just a few months back when former secretary Finance Naveed Kamran Baloch (who is currently serving as Pakistan’s Executive Director in World Bank) had opposed all-out autonomy for the central bank.

It is relevant to remind the Q Block that the Reserve Bank of Australia is Australia’s central bank and derives its functions and powers from the Reserve Bank Act 1959. Its duty is to contribute to the stability of currency, full employment and economic prosperity and welfare of the Australian people. Is Pakistan more developed than Australia?

The IMF’s Executive Board has not yet fixed any date as it will be determined after the Chairman/Deputy Chairman Senate elections. Both sides are exchanging notes on finalising the MEFP, then the LoI will be signed. But the IMF has placed approval of SBP’s amendment bill 2021 as part of conditionality for completion of the sixth review under the EFF programme, which has raised many key questions. The completion of sixth review also requires approval of budget from parliament. When the LoI is signed, it is circulated 15 days prior among members of the Board of Directors of IMF, so the Board meeting is expected to take place by end of March or early April 2021. When IMF’s Resident Chief in Pakistan Teresa Daban Sanchez was contacted, she replied that the date of IMF’s board meeting has not been decided or announced by the Board of Directors. “I expect it will happen in the next few weeks,” she added.