Finance minister says one thing, SBP another
The State Bank’s bi-monthly monetary policy comes weeks before the presentation of the annual budget. During the third review of the ongoing IMF programme, concerns and disappointments were expressed on the rising inflation and the performance of the FBR in terms of revenue collection. The issues stand out in the SBP statement also.
As was being widely expected the SBP has kept the monetary policy rate unchanged at 10% for the next two months. This was supposedly meant to deal with the volatility in Consumer Price Index (CPI). According to SBP the main reason for the volatility is unexpected movements in food prices and changes in administered prices. If a buildup of dollar reserves creating confidence in the strength of the rupee could have helped bring down domestic prices, the magic would have worked by now. The fact is that while big conglomerates may have gained from the rupee’s newfound strength, the man in the street failed to get any significant relief. The relatively high CPI reading for the last month reflects the administrative problem in combating high inflation in Pakistan. There is a perception that a business friendly government is not willing to come down hard on traders unwilling to reduce prices that had gone up with the depreciation of rupee. But is it possible to manage inflation through just one or two policy instruments, especially when one instrument, the interest rate, is expected to achieve multiple objectives?
There is a contradiction between the SBP and what the finance minister reportedly told the cabinet on Thursday. The SBP report speaks about a shortfall in tax collection compared to the budgeted target, instead of improvement, in tax collection by more than 15 per cent during this year. It has however been recognised that the tax-to-GDP ratio had dropped significantly.
It is a reflection on the state of governance that even amongst developing countries Pakistan is in the bottom-ranked nations with tax revenues less than 10pc of GDP. The present government too has failed to stop the rampant tax evasion. Unless the government undertakes measures for the documentation of economy, millions of well-to-do tax evaders would go scot-free. Last week, the FBR issued SRO 351, granting power of assessment and recovery to officials of the tax intelligence unit of the Inland Revenue Service (IRS), to unearth and recover the evaded tax from fraudsters. Within days the SRO was withdrawn, with the finance minister telling representatives of traders, industry and chambers of commerce, who were unhappy with the grant of additional powers to tax officials, that the FBR had issued the SRO without his approval and was “unfair in its spirit”.