While emphasizing the need for adopting good taxation principles with sometimes an increase in the base and some time increase in rates, the International Monetary Fund (IMF) said that it is working closely with the Pakistani authorities for advising on preparing the budget for the next fiscal year.
This was stated by Teresa Daban Sanchez, Resident Representative of International Monetary Funds (IMF) in Pakistan while speaking at online policy dialogue titled ‘IMF support to Pakistan under RFI, Existing Extended Fund Facility (EFF) program & Debt Rescheduling’ organized by the Sustainable Development Policy Institute (SDPI) here on Monday.
She further said that the Covic-19 has changed the near term outlook for Pakistan dramatically and new targets, projections and scenarios will be evaluated under the EFF which is intact, one the uncertainty is over.
“Pakistan needs to move the way with taxation in line with good taxation principles and some times it requires increasing the base and sometimes increasing the rates. As for I understand that prices in certain areas vehicles, beverages and petroleum products are not in line with other countries in the region so in this context, we advised Pakistan to move by adopting good taxation principles which are better not only for collecting more but also providing right signal about the cost of the products”, said the IMF official, adding that taxation on tobacco in Pakistan is very low and needs to be more taxed, not only for more collection but is also for health reasons.
IMF has no involvement over the decision on petroleum prices in Pakistan. If the government does not reduce the petroleum levy then it is its prerogative, she added.
Replying to a question, Sanchez said that everything has changed globally and in Pakistan as well. “We have to calibrate everything but how it will be calibrated I can’t answer this question as we have to set down together to make new targets, projections and scenario evaluated so”, she added.
IMF is working closely with the authorities in Pakistan and the next review mission may take place virtually. As the medium-term economic outlook is changing, we have to recalibrate everything from targets to trajectories. However, we need to continue working on EFF as a framework as the program provides continuity along with a healthy and sustainable trajectory from an economic point of view. It is encouraging that the GOP is committed to fiscal consolidation and reforms once the things get normal”, she added.
Replying to another question, she said that hot money was not part of the program, but Pakistan succeeded in attracting and now like other emerging markets, people are more risk averse and that is going out.
She said that Pakistan can repay its loans from China while remaining in the program, as there was no bar in the program. Pakistan has not requested the IMF to defer its loan payments as no formal request was received in this regard, she added.
She further said that the State Bank of Pakistan (SBP) act needed some changes to make it in line with the best international practices including for modern monetary policy and there are different ways in complying with best international practices. IMF experts are providing technical assistance to Pakistan in this regard, she added.
While commenting on the overall impacts of Covid-19 on Pakistan’s economy, she said that there will be a significant cut in imports from Pakistan from various countries, the remittances will get reduced, tax collection will reduce considerably and the growth rate may get reduced to -1.5 percent. It is in this context, funds under RFI arrangement will help Pakistan to bridge the gap in immediate financing needs. (Going forward, in Post COVID19 times,) “The IMF is working to make Pakistan as competitive and open as possible by making it more export oriented and an attractive destination for investment” she added.
The inflation rate is expected to remain at 11.3 percent this fiscal year. Pakistan’s expenditure may increase by up to 1.2 percent, whereas, the country’s tax receipts are projected to decline massively.
Everything is changing including prices as well as oil prices are going down. It is a credit for countries importing for energy, she said, adding that the demand supply also affects prices. Inflation is not only about some numeric but also depends on expectations.
Commenting on opening up of construction sector, she said that IMF supports opening of labour intensive sector where daily wagers may be absorbed. However, she hoped that amnesty announced for investment in construction sector is temporary in nature, and will be withdrawn once situation becomes normal.
“The IMF recommends that Pakistan as well as other countries recalibrate their policy actions as we move on. Therefore, the regulatory measures taken are temporary and regulatory relaxation might not be necessary in the future as it can create problems”, she added.
She said that the IMF was quite happy the way Pakistan was implementing different policies to achieve fiscal consolidation and macroeconomic stability and will continue to provide its support to the country to face the socio-economic challenges posed by COVID19. She shed lights on the IMF toolkit to fight the COVID-19 shock that includes the Rapid Finance Instrument which Pakistan will be utilizing.
Dr Abid Qaiyum Suleri, Executive Director, SDPI, while highlighting Pakistan’s recent engagements with the IMF, said that COVID19 has brought socio-economic uncertainties with a lengthy period of emergency response that will result in global recession. This “new normal”, according to the UN will be accompanied or followed by a sever food crisis. In these circumstances, multilateral lenders like IMF will have to redefine their role as a socio-economic savior to ensure “stability” of the “stability” that IMF talks about.
“Among all deficits that Pakistan is facing today, trust deficit between people and the IMF, may also lead to trust deficit between people and the government, which Pakistan cannot afford during these testing times. SDPI is continuously playing a positive role to bridge this deficit by bringing all stakeholders together for a candid discussion leading to greater transparency”, added Dr. Suleri ends.