Unrealistic IMF targets

Pakistan has once again requested the visiting International Monetary Fund (IMF) team to further reduce tax collection target. As reported in the media, in a meeting between a Pakistani team and the IMF mission for second review talks, the government informed the IMF that it cannot collect more than Rs 4.7 trillion while the IMF stressed that the Federal Board of Revenue (FBR) should still aim at Rs 5.238 trillion. It advised the government to go for extra measures.

This writer had explicitly reasoned out in one of his columns that it is an unrealistic target and may prove to be counter-productive. Many independent economists had advanced similar arguments.

The IMF programme, with its prime focus on reducing the fiscal deficit, withdrawal of subsidies on utilities, a reduction in debt liabilities and a sharp rise in lending rates has left little space for industrial and business growth - the prime sources of revenue generation.

Also, there was a consensus between IMF and Finance Ministry that the reforms shall lead to cooling down the economy.

In the wake of economic slowdown, an unprecedentedly high target of revenue collection was unrealistic and in conflict with the ground realities. Unfortunately, the IMF missed this critical point or eventually ignored it.

Pakistan has met all the six performance criteria related to fiscal and monetary sectors and two continuous performance criteria about borrowing. But it has missed four out of five indicative targets.

It is said that Pakistan over-performed on the target of restricting primary budget deficit to Rs 145 billion and instead posted a primary budget surplus of Rs 284 billion on back of higher profits from the central bank, one-off telecom licence fees and provincial cash surpluses.

The government also met the target of restricting the stock of sovereign guarantees below Rs 1.76 trillion and the guarantees remained at around Rs 1.6 trillion. Similarly, new borrowings from the central bank remained nil and the government did not accumulate external public payment arrears.

The net international reserves target of negative $ 16.1 billion, restricting creation of net domestic assets to Rs 8.8 trillion and lowering the currency swap exposure to below $8 billion were almost met.

The short-term currency swaps stood at $ 4.2 billion after the central bank bought nearly $ 4 billion from the exchange market. The $ 2.9 billion hot foreign money also helped achieve the monetary targets, although it came at the expense of suffocating economic growth.

Whereas, all pro-people spending targets were missed again and all numbers related to macroeconomic stabilisation, except tax collection and circular debt, were achieved during the second quarter.

Pakistan could not meet spending targets related to the Benazir Income Support Programme (BISP), health and education, tax collection and reduction in circular debt.

The high point of the achievement is the unprecedented and impressive increase in the tax base with more people motivated to come under the tax regime. This however was more of a number game and less of a volume game with tax collection not consistent with the number of new taxpayers.

The low point is the missing out of structural benchmarks related to the National Electric Power Regulatory Authority (Nepra), restructuring and privatisation of Public Sector Enterprises (PSEs) and reforms and privatisation of utility companies in the power sector. They continue to drain the national exchequer.

In the last IMF Programme, under the PML-N government, these targets were also missed out on account of labour upheaval and vote politics. This is one commitment which IMF will not let go this time. Moreover, it is in country's own interest that the PTI government should go for it without any further loss of time.

Critics were against the IMF programme from the very beginning with their fears based on a valid perception that the programme will usher in hardships for the people.

Indeed, the public is facing high inflation and rising unemployment. As expected, economic slowdown will continue for at least two more years.

Long-term benefits of IMF programme may well be determined on its completion after two years.

One thing which strikes out is the motivation and ownership of the program. The government of Pakistan, to start with, was well motivated to own the programme and went ahead to meet the targets - foremost being the revenue target of Rs 5.5 trillion.

In the process, Chairman FBR and his team members pulled their socks up to successfully enhance the tax base but fell short in meeting the revenue target. Piqued by a number of 'unfavourable' developments, the Chairman FBR seems to have aborted his efforts and 'disappear' from the scene, leaving behind a demotivated team. This is one of the shortcomings and consequences of setting unrealistic targets.

(The writer is former President of Overseas Investors Chambers of Commerce and Industry)