Ishaq Dar briefs IMF official on how floods hit economy

ISLAMABAD: Federal Finance and Revenue Minister Ishaq Dar on Thursday had a virtual meeting with the International Monetary Fund (IMF) Mission Chief Nathan Porter. 

The minister briefed him on the economic situation caused by the devastating floods, affecting infrastructure, crops and livelihood.

Dar said the government would take measures to reduce burden on economy while protecting vulnerable sections of the population. He said the government aimed to address structural issues so that Pakistan could end its fiscal deficit and move towards sustainable growth.

He also recalled the meeting of Prime Minister Shehbaz Sharif with the IMF MD during his visit to the US in which the latter had pledged support to Pakistan in this difficult situation and reconsider the programme conditions.

The finance minister reaffirmed the government’s commitment to undertake reforms under the programme. IMF Mission Chief Nathan Porter extended felicitations to Dar on assuming the finance ministry and shared the fund’s assessment of challenges facing the economy. He also expressed the IMF’s support for Pakistan in this hour of need and in this context mentioned the meeting of the IMF MD with the prime minister of Pakistan.

The IMF mission chief also discussed the support of international lenders for the country to mitigate the effects of floods. Dar thanked him for the IMF’s support at a difficult time for global economy.

Meanwhile, according to local media sources, Finance Minister Dar has sought a report on banks practice of opening letters of credit (LCs) five to eight rupees above the dollar rate. “Strict action will be taken against the bank officers found to be involved in the practice in the light of investigation report,” the sources quoted him as saying.

The business community had to pay crores of rupees extra for this practice of the banks, the sources said. The sources said the bank officials had illegally earned crores of rupees from importers through the practice. “The banks continued this practice for several weeks.”

The sources said All Pakistan Textile Mills Association (Aptma) chief Gohar Ejaz had already urged the prime minister to hold an inquiry into this practice. They quoted Gohar Ejaz as saying that banks had earned billions of rupees through this practice which had overburdened the national economy and the Pakistani rupee. “Industrialists and traders are welcoming this audit inquiry.”

Finance Minister Ishaq Dar also visited the FBR headquarters on Thursday to gear up efforts for materialising revenue collection efforts because he knew that in case of a shortfall, there would be no other option but to devise an emergency plan for taking additional measures for keeping the IMF programme afloat during the current fiscal.

While showing optimism about achieving quarterly target despite all odds, the finance and revenue minister asked the FBR to materialise true potential and jack up tax-to-GDP ratio upto 15 percent.

In the aftermath of rebasing of national accounts, the size of the country’s economy has gone up but the tax-to-GDP ratio has further declined. Now the FBR’s tax-to-GDP ratio stands at less than 10 percent.

The FBR has so far collected Rs948 billion in first two months (July and August 2022) against the envisaged target of Rs926 billion, so the board has surpassed the assigned target by Rs22 billion.

In order to comply with the IMF conditions, the FBR requires collection of Rs683 billion during the ongoing month (September 2022) for materialising the desired revenue collection on its board for the first quarter (July-September) period of the current fiscal year.

The FBR has envisaged an annual revenue collection target of Rs7,470 billion for the current fiscal year. Without achieving the desired target, the government will not be able to stick to the budget deficit target (the gap between total revenues minus total expenditure) of 4.9 percent of GDP and get a primary surplus of 0.2 percent of GDP equivalent to Rs153 billion in the current fiscal year under the IMF programme.

According to the official statement issued Thursday, Finance Minister Ishaq Dar visited the FBR and presided over a meeting on the revenue performance of FBR. The FBR chairman and members attended the meeting.

FBR Chairman Asim Ahmad extended a warm welcome to the minister on behalf of the FBR team and gave a presentation explaining various revenue initiatives and issues currently being faced in revenue administration.

It was also briefed that the FBR had successfully achieved its monthly targets for the months of July and August, 2022, and it would also achieve the quarterly target up to September, 2022.

“This performance is despite the slowing down of economy in the month of September due to floods, import contraction and shrinking of demand due to inflation in the country as well as no sales tax on POL products.”

The minister appreciated the FBR team for its efforts in meeting targets. He assured the team that he would extend full support in the performance of their duties. He especially appreciated the work done by the FBR in terms of increasing the share of direct taxes (income tax and capital value tax) in the total share of taxes as compared to last year through important tax measures taken this year for taxing the rich. He also highlighted the importance of taxpayers’ engagement in devising tax policies and revenue collection efforts.