Shehbaz says govt working on IMF terms for loan programme

ISLAMABAD/ LAHORE: Ruling out the possibility of withdrawal of tax on retailers, Minister for Finance Mohammad Aurangzeb said on Tuesday that the IMF programme was at an advanced stage for securing assurances on external finance. After this, the Fund’s Board would be approached for approval.

“The retailers scheme is not going to be taken back,” the finance minister declared in a televised address on Tuesday. On the rightsizing of ministries, he said there would be legislative changes in the Civil Service Act 1973 and they have talked to coalition partners to get approval from parliament. He said an earlier plan for right-sizing could not be implemented in 2019 because there was no implementation plan.

The minister said that the size of federal government would come down. Two ministries would be merged and the number of officers from Grades 17 to 22 would decrease. Autonomous bodies would be heard why they should exist as unilateral discussion would not occur. The implementation plan, he said, would be followed up as workforce, assets and liabilities would be settled. In the next phase, they would take up five more ministries.

The minister said the FBR faced a shortfall of Rs98 billion but the government would not hold up refunds to improve liquidity. The digitisation in the FBR would start from the ongoing month.

The minister for finance stated that efforts made by them in the last six months had started yielding results on account of achieving macroeconomic stability. He said that foreign exchange reserves stood at over $9 billion and currency was stable. The twin deficits, especially the current account deficit, was under control as the backlog on account of stuck-up amount at import stage through LCs or dividends of the last 18 to 24 months period got cleared. Inflation, he said, had peaked to 38 percent and now receded to 9.6 percent in August 2024 against 23.7 percent in the same month of the last fiscal year.

The inflation rate has witnessed downward trend, he said and added that the policy rate had also started declining which would help industrial sector achieve growth momentum. All stakeholders worked hard to bring inflation into a single digit, he said and hoped that the policy rate would also be reduced.

The remittances remained at all time high and international credit rating agencies improved Pakistan’s rating by one notch. He said it was recognised that the economy turned towards a positive trajectory and conceded that Pakistan would have to go a long way. The direction of travel has to be right so that the sustainable path on revival of economy could be pursued. “The macroeconomic stability is basic and there is the need to do it right as there is no path without stabilisation,” he added.

He pointed out that the DNA of the economy was import led, so whenever it exceeded growth rate of 4 percent, the country faced into balance of payment.

On FBR’s collection, he said the FBR’s tax revenues would have to be increased as the country could not grow with tax-to-GDP ratio of 8.8 percent. The salaried and manufacturing sectors contributed more and how long they would continue paying more, he added.

The minister said that retailers scheme would not be taken back as other segments would be at loss. He said all countries functioned on the basis of revenues and could not run on basis of charity.

On account of getting IMF assurances, Pakistan is at advanced stage. He extended appreciation to four chief ministers for providing full support and said that without their cooperation, the Staff Level Agreement (SLA) with the IMF could not be struck. It would be the last IMF programme but it requires implementation on structural reforms.

Meanwhile, Prime Minister Shehbaz Sharif on Tuesday expressed the commitment to bringing economic growth and stability in the country. “We have to provide productive employment and reduce expenditures, in addition to shrinking circular debt in gas and power sector,” the premier said while addressing the federal cabinet and emphasized the need to advance in this direction with urgency.

The prime minister also highlighted the need to control and eliminate evasion and corruption in revenue collection, as well as to end smuggling. He recognized that there was also seriousness and commitment towards this end.

Shehbaz Sharif said the requirements and conditionalities of the IMF will be met on time and expressed confidence that its board will approve Pakistan’s loan programme but said it should be remembered it would be the last IMF programme so that the country could stand on its feet.

Shehbaz Sharif expressed satisfaction over gradual reduction in the inflation rate. He said it came down to a single digit of 9.6 percent in the month of August, compared to 27 percent of the corresponding period last year. Describing it as a very good achievement, he commended the finance ministry and other relevant ministries for their efforts in this regard.

Meanwhile, the federal cabinet approved the ex-post facto signing of Trade Framework Agreement between Pakistan and trade bloc of South American countries called MERCOSUR. The trade bloc comprising countries like Brazil, Argentina, Uruguay and Paraguay is commonly referred to as the Southern Common Market. The federal cabinet also ratified the Trade Framework Agreement.

With regard to the framework agreement, the prime minister said South American countries can be a good market for Pakistani goods but the Pakistani economy has not yet been able to reap the benefits of this market. He directed that all agreements and memorandums of understanding related to the economy should be expedited.

The cabinet also approved the signing of a bilateral political consultation Memorandum of Understanding between Albania’s Ministry of Europe and Foreign Affairs and the Ministry of Foreign Affairs of Pakistan. The meeting also ratified the Convention on the Privileges and Amenities of the Secretariat, its staff and representatives of member states of the Conference on Interaction and Confidence Building Measures in Asia 2010.

Meanwhile, the International Monetary Fund (IMF) has outright rejected the government’s proposed plan for providing across-the-board subsidy for reducing the electricity tariff, arguing that only targeted subsidies could be implemented under the Fund programme of 37 months.

On the other hand, the IMF’s Executive Board issued a calendar till September 13, 2024 but Pakistan was not included in the list of countries for consideration of loan approval or getting a nod on Article IV consultation, which is mandatory for all member countries of the IMF.

In the aftermath of declining CPI based inflation that receded to 9.6 percent for August 2024 against 23.7 percent for the same month of the last fiscal year, expectations have grown that the next Monetary Policy Committee (MPC) scheduled to meet on September 12, 2024 might take the decision to reduce the policy rate by 150 to 200 basis points, bringing it down from 19.5 to 17.5 or 18 percent.

Top official sources confirmed to The News on Tuesday that the government had presented its plan to the Fund on subsidies for electricity consumers by cutting down development allocation at federal and provincial governments. But the Fund had rejected the plan in totality and in plain words by making it clear that such “unsustainable plan” could not be implemented during the programme period of EFF of 37 months.

The former secretary power had made plans for providing subsidies to power sector consumers by reducing the Public Sector Development Programme (PSDP) from Rs1,100 billion to Rs750 billion and rationalizing other expenditures. The federal government had planned that the provinces would also generate an equal amount from their shares in the NFC for matching the amount. This amount would be utilized for capacity repayments, closing down domestic IPPs and for subsidies to power consumers. However, the IMF has rejected the plan in totality as there was no one from the Ministry of Finance and Power to defend it before the IMF.

The IMF also asked that when the government would slash down public investment, which was increased for kick-starting the sluggish economic activities, then how the macroeconomic framework would be materialized. So this framework might have to be altered when the Staff Level Agreement (SLA) was already struck under $7 billion EFF programme.

When this scribe contacted Minister for Finance Mohammad Aurangzeb, he stated “only targeted subsidies” could be provided.

Pakistan has sought GDP growth rate of 3.5 percent and average CPI based inflation of 12 percent for the current fiscal year. The Public Sector Development Program (PSDP) was put at Rs1,400 billion with federal share of 1,250 billion and public private partnership of Rs150 billion at the start of the budget for 2024-25 announcement. It was revised at the time of approval of the budget from parliament with federal resources for PSDP to the tune of Rs1,150 billion and share of PPP on papers was increased to Rs250 billion. Then the federal PSDP was slashed down to Rs1,100 billion and Rs50 billion was spared for providing relief to power consumers using up to 200 units of electricity. Now it is proposed that the federal PSDP might be reduced to Rs700-750 billion but the controversial programme known as Sustainable Development Goals (SDGs) Achievement Programme (SAP) for parliamentarians with allocation of Rs75 billion would be protected at all costs.

However, after two months, the government did not release any penny for PSDP funds meant for the first quarter (July-September) period of the current fiscal year, so the project employees are unable to draw salaries for the last two months.

Meanwhile, Information Minister Punjab Azma Bokhari has clarified that the IMF has not yet contacted the federal or Punjab governments on the relief in electricity bills.

Furthermore, no written or official press release has been issued by the IMF. The news circulating in the media is baseless. The media should avoid speculation on national matters.