- Govt boasts of 7th review as IMF chief lauds Pakistan’s forex reserves, announces $560 million in June
Indebted to the International Monetary Fund (IMF)’s rare appreciation of the government’s performance and relaxation in the fiscal deficit limit on account of Pakistan Army Operation Zarb-e-Azab, Finance Minister Ishaq Dar vowed on Monday that the painful economic reforms will continue to stabilise the economy.
Addressing a joint news conference with IMF’s Mission Chief for Pakistan Harald Finger, the finance minister said that it was the first time in Pakistan’s history that a government has been able to hold seventh consecutive review with the IMF, as normally no programme has managed to go beyond three of four reviews. “We have met all targets for the third quarter and for the first time, no waiver has been sought for any of the conditionalities.”
His account was substantiated by Harald Finger, who said that Pakistan has made significant progress since the start of the $ 6.6 billion extended fund facility arrangement in 2013. He especially mentioned the central bank’s build-up in foreign exchange of $ 12.5 billion reserves which were enough for over three months of imports. The executive board of the fund will consider releasing the next tranche of $ 506 million to Pakistan in June this year, he announced.
Finger said the country’s GDP growth was likely to remain 4.1 per cent during the current fiscal year and 4.5 per cent during the next fiscal. He said headline inflation dropped to 2.1 percent in April, but is expected to increase in coming months. “The tax and power sector reforms are difficult to implement everywhere and will take time to succeed.”
Pakistan, he said, has large gaps in private sector investment which has fallen to 10 per cent of GDP, as compared to 30 per cent for other emerging economies. Similarly, it has a low Tax- to-GDP ratio of 10 percent, as compared to 14 and above for other countries, he added. “These are significant gaps and need to be improved and we will help them reduce.”
He stressed more efforts for fixing the power sector, widening the tax base, speeding up privatisation and improving the business climate in the country. He said the power sector circular debt had again risen to over Rs 260 billion during the current fiscal year and required elimination of untargeted subsidies. “The government has agreed to provide us an indicative circular debt limit for the next fiscal year.”
When asked about the retaining of previous years power subsidy outside the federal budget, he said the World Bank and Asian Development Bank were helping to address the issue of Rs 370 billion subsidy parked in a power holding company.
Addressing on the occasion, Finance Minister Dar said the government will achieve the fiscal deficit target of 4.9 percent of GDP for the current fiscal year, despite spending an unbudgeted amount of Rs 44 billion for Operation Zarb-e-Azab and slowdown in revenue collection on account of the decline in petroleum prices, by cutting its expenditure. The development expenditure is likely to be most affected, he said.
The IMF authorities, he said, agreed to enhance the fiscal deficit limit by 0.3 percent to 4.3 percent of GDP for the next fiscal year. The relaxation was granted in lieu of expenditure related to Operation Zarb-e-Azab and rehabilitation of temporarily displaced people (TDPs).
The government will take foreign exchange reserves to record high level of $ 18.5 billion, from the current level of $ 17.6 billion, during the upcoming month of Ramzan this year. The highest level previously was $ 18.2 billion. Other than the expensive Euro and Sukuk bonds, the major role will be played by overseas remittances which are expected to be over $ 17 billion during the current fiscal year.
Dar said despite the pressure in commodity prices, mainly petroleum products, and low inflation, the Federal Board of Revenue (FBR) had done a good job by maintaining 13 per cent growth in tax collection, which amounted to Rs 1,968 billion during the first ten months of the current fiscal year. He said the power of finance minister and FBR to issue concessionary SROs has been taken back; only ECC could issue it in future.
In reply to a question, FBR Chairman Tariq Bajwa said the FBR, as per commitment with IMF, was including 100,000 new taxpayers every year. He dispelled the impression that FBR was retaining refunds to achieve the tax target. He said FBR has refund claims of Rs 180 billion and they need proper checking before release.
