Tuesday August 09, 2022

We are deciding many things under IMF pressure: Tarin

Tarin expresses hope that the mini-budget would be approved by the Parliament within the given time frame as committed to the IMF

January 03, 2022

ISLAMABAD: Federal Minister of Finance Shaukat Tarin on Sunday conceded that many decisions made by the government were the result of pressure applied by the International Monetary Fund (IMF) and termed the geo-political situation of the region and government commitments made in March 2021 with the lender as reasons for the Fund being assertive.

During an interaction with Geo News in programme ‘Naya Pakistan’ when host Shahzad Iqbal asked about the pressure exerted by the United States on the IMF due to Pakistan’s geo-political situation, Tarin admitted there was such pressure, adding that negotiating with the IMF for the restoration of US$6 billion Extended Fund Facility (EFF) was not a cakewalk this time due to the situation of the region after the US exit from Afghanistan and the way the previous finance team pulled out of commitments made to the IMF in March while taking a few million dollars as loan.

The finance minister was speaking on a number of issues, including Supplementary Finance Bill 2021, State Bank Amendment Bill, inflation, prior actions demanded by IMF and other core issues related to finance.

About possibility and deadline of passage of Supplementary Finance Bill 2021 from the National Assembly, Tarin expressed the hope that the bill will sail through easily and would be enacted by parliament, within the given time-frame as committed to the IMF. "It may take 3 to 4 days more beyond the important date of January 12, when IMF board is going to approve the 1 billion US dollar tranche."

Talking about the other bill tabled in the National Assembly, which deals with the autonomy of the State Bank of Pakistan (SBP), Tarin made the point that this bill was needed to be passed by the Senate as well, and he expressed the hope that this bill, too, will be passed. "We have taken our allies into confidence and briefed them on every aspect of the bill and their apprehensions were addressed."

Elaborating on the idea of autonomy of SBP, the minister said that the SBP was being given independence but the bank can never be separated from the Government of Pakistan and the role of finance ministry cannot be eliminated.

Abolishing the policy board won't make a big difference, the FM stressed. When asked about the coordination between the governor SBP and finance minister, Tarin replied that he speaks with the governor at least thrice a day on issues and the perception about misunderstanding and differences between them was wrong.

The political and financial implications of the Supplementary Finance Bill and State Bank Amendment Bill also came under the scope of the discussion in the programme. "We are not imposing new taxes in mini-budget, but withdrawing tax exemptions amounting to Rs343 billion." He reiterated the point that common man will have to bear the hit of 2 billion rupees only and tax exemptions were being withdrawn from items the elite class uses.

He said that raising the tax collection target to 6.1 trillion rupees from previously-set target of Rs5.9 trillion is not a compulsion made by the IMF. "We offered Rs6.1 trillion ourselves, keeping our record collection in the first half of year, which is well beyond the target."

In reply to a question that if tax collection won't inflate with this withdrawal of exemptions, then what is the purpose of the whole exerxise and why the IMF has been pushing for it, he replied that it was done to document the economy as several sectors were not documented.

Shahzad Iqbal asked if it was merely for the purpose of documentation, then why tax rate in certain sectors had been raised, as it could be documented on the existing rate. "IMF is of the view there should be uniform sales tax in all the sectors and then subsidies or refund, whatever needed, should be granted."

The rise in Consumer Price Index (CPI) was also discussed during the show. The finance minister agreed that there was a rise of 12.1 percent year-on-year CPI data recorded in December 2021.

Tarin further said that there was another angle to see the things; rather than comparing data to statistics of last year, it should be taken that prices went down in December, as compared to November. "Our approach is half-glass full and your approach is half-glass empty," Tarin said. He termed this rise in prices is a dependent phenomenon as we import commodities and global commodity prices are on the rise, but this global cycle can't stay for long as the world is taking steps to bring the prices in control.

"We need to do several things right, we will have to take measures to curb rupee depreciation, we need to work for control on supply chain of commodities and idea of cold storages of commodities." He also stressed on the point that he was clear in approach and will keep on expressing his heart and mind on issues.

"We negotiated with the IMF and rupee showed a recovery and it will show more improvement when we will get the tranche." He endorsed his view about the rupee being undervalued unnaturally. He said that the SBP was proactively working now in this regard.

"I made my views clear and categorically conveyed it to governor SBP and commercial banks that how overprofiting was being practised," Shaukat Tarin replied. Shahzad Iqbal asked if he was satisfied with the decisions being taken by the government.

"Things are shaping up in the right direction," Tarin answered. He further added that he still believes that if capacity payments is one issue, line-losses is the other issue which is costing us badly; we need to fix this as well and performance of DISCOs need an improvement.

"I pray that we leave the IMF once and for all now. If we were doing well, then what was the need to go to IMF?" The finance minister also spoke openly about the bitter facts like the mood of IMF and said that we are deciding several things under pressure exerted by IMF, like we have to increase the Petroleum Development Levy on petrol. When asked that why couldn't Tarin convince the IMF on issues of power tariff and tax collection, he replied the IMF was tougher this time, due to geopolitical situation and some commitments made by the former finance minister in March 2021.

The finance minister said that the tool of targeted subsidy was still with him when asked about taxation on 850cc vehicles, solar panel and point of sales, which should have been incentivised as per the government policy to encourage its use. The minister showed reluctance on commenting openly on growing trade deficit and current account deficit.

"Razzaq Dawood should be questioned about this." He predicted that trade deficit would be lower in the next half of fiscal year, citing no need for importing wheat, sugar and vaccines like last year.