In a bid to fulfill one of the major prior conditions for reviving the stalled IMF programme under the $6 billion Extended Fund Facility (EFF), the Pakistan Tehreek-i-Insaf led government presented and passed the mini-budget through the enactment of Tax Laws Supplementary Act. Amid criticism by the opposition parties, the government approved the mini-budget to fetch Rs 350 billion through withdrawal of General Sales Tax (GST) exemptions and jacked up taxes on telecom customers.

Minister for Finance Shaukat Tarin and Federal Board of Revenue Chairperson Dr Mohammad Ashfaque claimed that the impact on common consumers would be limited to Rs 2 billion because the withdrawal of GST exemptions on pharmaceutical and capital goods was adjustable/ refundable as the IMF wanted to remove distortions from the taxation system.

There is a need to analyse the impact of mini budget on the Consumer Price Index (CPI). It stood at 12.3 percent for December 2021. After enactment of the mini-budget, it is expected that the CPI-inflation could touch the 13 percent mark mainly because of increased taxes, increased electricity and POL prices and low base effect. There are 462 items in the CPI basket. The withdrawal of GST exemptions on medicines, packaged food, laptop, computers and jacking up withholding tax on cellular customers by 50 percent on use will have a certain impact on the increased inflationary pressures. The increased inflationary expectation will also add pressures on price hike in months ahead of the current fiscal year.

According to the State Bank of Pakistan’s (SBP) analysis, Pakistan’s import bill witnessed a surge mainly because of 60-70 percent increased commodities/ food and petroleum products prices and the total import bill might touch the whopping figure of $70 to $80 billion for the current fiscal year. The international market-induced price pressures have pushed up CPI-based inflation. There is no chance for it to recede in the second half of the current fiscal year.

Now, there is another challenge lying ahead for Pakistan’s economic managers. It is still unclear how the IMF responds in terms of the revival of the stalled $6 billion programme under its EFF arrangement. The IMF Executive Board is scheduled to hold a meeting on January 28, in Washington DC to consider the completion of the sixth review and release of a $1 billion tranche under the EFF programme.

The government has to seek approval of the State Bank of Pakistan (Amendment) Bill, from the Senate. If the Upper House of the parliament makes major changes in the bill then it will create a difficult situation for the government.

Without the revival of the IMF program, Pakistan will have to face challenges for managing gross external financing requirements as former Finance Minister Dr Hafiz A Pasha tells this scribe that the gross financing requirement was estimated at around $30 billion for the current fiscal year and without the backing of the Fund program it would become difficult to manage external financing requirements.

The mainstream opposition parties including the PML-N and the PPP are claiming they will put up stiff resistance from the Senate but the treasury benches so far seem confident that the bill would be approved.

If the revival of the IMF programme is delayed further, Pakistan will face a tough challenge of managing gross external financing requirements. Former finance minister Dr Hafiz A Pasha tells this scribe that the gross financing requirement is estimated at around $30 billion for the current fiscal year. Without the backing of the Fund programme it will become difficult to manage external financing requirements.

With regard to the mini-budget, tax say stated that the government can fetch up to Rs 200 billion through withdrawal of GST exemptions and other measures. They doubt the official estimates of generating Rs 343 billion.

It is yet to be seen how the IMF responds to the measures proposed through Tax Laws Supplementary Act 2021.

The FBR plans to generate Rs 160 billion through the imposition of 17 percent GST on raw materials for the pharmaceutical sector. However, this amount is in adjustable mode and the FBR has made a commitment to provide refunds within a month or two so their liquidity problem is resolved.

The FBR will provide refunds of over Rs 30 billion more than its collection. That’s why the FBR chairperson has claimed that the prices of medicines in the domestic market are expected to come down by 15 to 20 percent. Another major revenue spinner is machinery. The FBR has proposed withdrawal of GST exemptions to fetch Rs 112 billion. This too will be in adjustable/ refundable mode.

There will be only Rs 71 billion additional revenues through withdrawal of GST on goods being used by customers. According to the government, the common man-related goods will have an impact of just Rs 2 billion.

There is a need for robust economic modelling to incorporate the decline in sales as a result of an increase in taxes. The revenue forecasting model needs to be based on multiple sectors for more accurate results.

Accurate economic modelling alone can tell us what the impact is going to be. Pasha says he hopes the authorities have done the required modelling and used scenario analysis to ensure the sanctity of amounts expected from the removal of exemptions/ concessions.

If the IMF does not agree with the revenue estimates then a revival of the Fund programme would be uncertain. The IMF might then demand fresh negotiations of the programme keeping in view the changed macroeconomic data because the last parleys for completion of the 6th review were done on the basis of data for the first quarter (July-Sept). If the IMF programme is not revived immediately then the IMF may come up with the demand to re-negotiate the deal on the basis of macroeconomic data available until December 2021. In that case it will become more difficult for Pakistan to secure the IMF funding as the current account deficit and the budget deficit are widening.

So, defining moments for the revival of the IMF programme are around the corner. The government has to realise that it is going to be now or never. A failure to get the IMF funds could put the survival of the PTI-led regime in jeopardy.

The writer is a senior staff reporter at The News International, Islamabad