Economic reform agenda: Govt has no room for complacency, says Aurangzeb

ISLAMABAD: Finance Minister Muhammad Aurangzeb on Monday said that there was no room but to stay the course of reform agenda to ensure it is the last International Monetary Fund (IMF) programme, as well as long-term economic development.

“The key message by the multilateral and bilateral partners, as well as, local think-tanks for Pakistan is to stay the course of reform agenda including taxation, energy and state-owned entities (SOEs), as well as, public finances,” said the minister, while briefing the National Assembly Standing Committee on Finance, here on Monday.

The committee met under the chairmanship of Syed Naveed Qamar to discuss commitments with IMF, revenue measures, and provincial expectations.

Economy: Aurangzeb outlines steps

Due to the sensitivity of the discussions, the department requested an in-camera session, which was partially agreed upon by the committee, allowing select discussions and Q&A to be held in-camera.

The minister for finance and revenue briefed the committee on the government’s commitments to the IMF, quantitative performance criteria, structural benchmarks on fiscal, governance, social, monetary and financial, energy sector, SOEs and investment policy, continuous performance criteria, indicative targets and expectations from provinces.

The committee was also informed about achievements which included the successful implementation of measures such as the zero new flow of State Bank credit to the government, the rationalisation of deposit insurance legislation, and the ceiling on the government’s primary budget deficit.

The minister also warned that without controlling the country’s growing population, economic reforms are meaningless. He called population growth one of the biggest challenges undermining Pakistan’s long-term economic stability.

The minister also highlighted recent economic improvements, particularly the big shift from deficits to surpluses in the primary and current accounts and an increase in foreign reserves to cover two and a half months of imports.

He said a lot has improved in the last 12-14 months. Macroeconomic stability has been achieved, the currency is stable, foreign exchange reserves have stabilised, and inflation has come down.

Aurangzeb said inflation has fallen sharply from 38 percent to below five percent, with the policy rate dropping from 22 percent to 15 percent, boosting private sector credit growth. “By March-June, foreign exchange reserves will be enough for three-month imports,” the minister added.

He stressed the need for energy and economic reforms besides achieving pending IMF targets for privatisation and rightsizing. The government is working on a 10-year climate change programme with the World Bank, the finance minister added.

The federal minister shared details about the upcoming 10 year Country Partnership Framework with the World Bank (WB), noting that Pakistan will be the first country to enter such a framework. He emphasised that the framework will address existential challenges, including population growth, child stunting and climate change, underscoring the government’s commitment to sustainable development.

A key topic of discussion was the role of provincial governments in meeting IMF targets, especially regarding agricultural income tax reform.

The minister informed the committee that all provinces were engaged before the current IMF programme and that provinces would need to amend their agricultural income legislation to align with federal tax codes, with implementation set for January 2025.

The committee acknowledged the necessity of increasing revenue but raised concerns about the potential negative impact of tripling agricultural income taxes. A recommendation was made to consider incentivized reduced rates to encourage tax compliance.

The minister assured the committee that he would engage with provincial authorities to develop a comprehensive plan to enhance tax compliance and expand the tax base.

The FBR chairman briefed the committee on the revenue slippages, measures envisaged to offset the shortfalls, to meet the commitments.

The committee required a comprehensive briefing from the chairman FBR on the transformation plan in the next meeting of the Committee.

The committee also desired a detailed briefing on structural benchmarks, performance criteria and indicative targets from the minister for finance and revenue in the next meeting.

The briefing given to the committee also revealed that government has missed some indicative target set for end September 2024 including floor on the weighted average time-to-maturity of the local currency domestic debt securities stock, cumulative floor on general government budgetary health and education spending, as well as, floor on net tax revenues collected by the FBR.

The committee was informed that there are 22 structural benchmarks of the program. The federal government has to implement 18 and the State Bank has to implement four. The committee was also informed that the government cannot give any kind of tax incentives and it cannot issue net supplementary grant.

Gas supply to captive power plants in the gas sector has to be stopped, said Finance Secretary. Like federal government officers, provincial officers will also have to provide details of their assets, the finance secretary added.

Copyright Business Recorder, 2024