Pakistan on Friday said that it was ready to address the International Monetary Fund’s concerns over the budget for fiscal year 2023-24 after Prime Minister Shehbaz Sharif took note of the fast deterioration in relations with the global lender during the past few days.
“We are not doctrinaire about any element of the budget FY24 and are keenly engaged with the IMF to reach an amicable solution,” said the Ministry of Finance in a surprising statement in response to the IMF’s objections over the new budget.
The new statement marks a departure from the earlier rigid stance taken by Finance Minister Ishaq Dar who on Thursday said that Pakistan would not accept IMF’s advice on giving tax exemptions.
Sources told The Express Tribune that the prime minister called an early morning meeting on Friday.
He asked the finance ministry to try to address the concerns expressed by the IMF with regard to the new budget, said the sources and added that after the PM’s meeting, the government decided to take another shot on the 9th review that carries a bonanza of $1.2 billion tranche.
A day earlier, it looked like that the Pakistan-IMF programme ended after a tit-for-tat response by the IMF and the Pakistani authorities. The finance minister also had a meeting with the IMF Mission Chief early this week that also remained inconclusive.
“It is in our national interest that we complete the 9th review and get another loan tranche of $1.2 billion,” said a senior government functionary on the condition of anonymity.
He said that the entire economic team was on the same page with regard to at least completing the 9 review of the programme.
The prime minister has multiple times made interventions to save the IMF programme. Last time, he also made a telephonic call to the managing director of the IMF and requested her to complete the 9th review.
“We’ve made all the efforts to complete the ninth review, but it takes two to tango,” said Dar on Friday while speaking during a meeting of the National Assembly Standing Committee on Finance.
The latest bout of controversy started after the fund objected to grave violation of an understanding reached with it, saying the proposed budget was not in line with the understanding reached between the PM and the Managing Director of the IMF.
The Resident Representative of the IMF, Eshter Perez Ruiz, on Wednesday had said that Pakistan missed the opportunity to broaden the tax base in the new budget and that the “new tax amnesty” scheme was against the IMF programme conditionality, against governance agenda and also sets a “damaging precedent”.
“The government should win over the IMF, show some patience and try to complete the 9threview as we all know that without the IMF we cannot solve our problems’ ‘, said PML-N MNA Ali Pervaiz. He suggested that the government should bring changes in the budget to the satisfaction of the IMF.
In its statement, the Ministry of Finance said that the government of Pakistan was fully committed to the IMF programme and is keen to at least complete the 9th Review.
The Finance Ministry said that the coalition government has already taken many difficult and politically costly decisions in this context.
The Ministry of Finance said that the 9th IMF Review was conducted in early February 2023 and the government of Pakistan completed all technical issues at a fast pace.
“The only outstanding issue was of external financing which we understand was also amicably resolved in the Prime Minister’s telephonic call of 27th May 2023, with the MD of the IMF”, said the Finance Ministry.
It is for the first time that the finance ministry admitted that the external financing issue was outstanding. So far, its view had been that the understanding was that Pakistan would arrange $3 billion before the Staff Level Agreement and the rest of the $3 billion after the agreement but before the board meeting.
The Finance Ministry said that “though the Budget FY 24 was never a part of the 9th Review, however in line with PM’s commitment to the MD IMF, we shared the budget numbers with the IMF mission”.
Ishaq Dar said on Thursday that he was never in favour of sharing the budget until the IMF agreed to a separate 10th review of the programme.
The ministry said that the government was “continuously engaged with them (IMF even on the Budget”.
While responding to the IMF observations over a narrow tax base, the Finance Ministry said that the FBR has added 1.161 million new taxpayers or 26.38% to its tax base in the last 11 months. This is an on-going exercise and will continue.
The 0.6% advance adjustable withholding tax on cash withdrawals over Rs. 50,000 is another big step in this direction, it added.
But a Reform and Revenue Mobilization Commission report exposes the shallowness of the FBR’s tax base. The Ashfaq Tola-led Commission revealed that during the fiscal year 2022, 75% of the income tax was paid by only 13,958 taxpayers, which was just 0.39% of the total filers. In India, 22% taxpayers paid 75% of the income tax.
Not only that, there are 7.6 million registered persons with the FBR but only 3.6 million filed their returns, showing the incapacity of the FBR that is unable to even get returns from those who are already registered with it.
The Finance Ministry further stated that “the tax-exemptions that have been announced in the Budget are triggers of growth in the real sectors of economy”. It added this was the sustainable path to provide employment and livelihood to the common citizen. In any case, the amount is fairly small.
But the IMF opposes tax exemptions, irrespective of whether the amount is small or large.
Dar said on Friday that if the country wanted to a growth rate from 0.3% towards 4%, then tax exemptions were important for the next fiscal year.
While responding to the IMF’s observations on the on BISP allocation, the finance ministry said that the pro-poor initiatives in the budget are not limited to BISP beneficiaries whose budget in any case has been increased from Rs400 to Rs450 billion.
There are millions of vulnerable people above the poverty line and the budget provides Rs35 billion for targeted subsidies on five main items of food consumption through the Utility Stores Corporation for families upto a PMT scorecard 40. This facility is also available for BISP beneficiaries, said the ministry.
While responding to the amnesty issue that the IMF has severely criticized, the Finance Ministry said that the “only change is to dollarize the value of an existing provision of IT Ordinance”.
In the budget, the government has proposed the no-question ask limit of unexplained income from Rs50 million to $100,000, which is equal to a whopping Rs30 million at today’s exchange rate.
Meanwhile, the PM publicly appreciated Ishaq Dar’s performance as the Finance Minister.
“Ishaq Dar is working day and night amid severe economic challenges; I’m telling you honestly,” PM said. Everyone has his own views but there are no two opinions on his hard working and integrity, PM said, adding Dar is tirelessly working and works day in and day out because the IMF issue is going on.
“For fulfill the IMF’s conditions,” the PM said, “we have turned upside down” because the country’s interests demand that we take it forward by reaching a short-term agreement with the IMF.
“Our horns are still locked with the IMF,” PM said, urging to pray that the country may finally come out of the difficult economic situation, assuring that the country will surely emerge victorious just like it did in countless difficult situations in the past.
PM Shehbaz said that those pulling Finance Minister Ishaq Dar’s legs and speaking against him have no right to stay in the PML-N. The prime minister said that Dar has ruined his health by working nonstop day and night, yet there were people who continue to taunt him.
The article originally appeared in The Express Tribune
