EDITORIAL: The detailed sixth staff review report on the 6 billion dollar Extended Fund Facility programme was uploaded on the International Monetary Fund (IMF) website this weekend past and while it supported scaling up of the Prime Minister’s flagship social protection programme “Ehsaas” but limited to two stipulated parameters: (i) finalization of the National Socioeconomic Registry to support a targeted expansion of Benazir Income Support Programme (BISP) beneficiary base; and (ii) analyzing the needs of the vulnerable to customize more effective programmes.
However, notwithstanding this general support, the report urges the government to make efforts to increase fiscal space, and cautioned against the “launch of new programmes outside the authorities’ flagship BISP, which risks undermining a comprehensive, fully financed and coordinated scaling up of a well-targeted social safety net” — programmes identified as the 1.63 trillion rupees Kamyaab Pakistan Programme and food safety programme (ration cards) aimed to provide a monthly stipend to 20 million households on three staples which would account for 0.2 percent of Gross Domestic Product. Four observations are in order.
First and foremost, the tone of the entire sixth staff review report challenges the decision to delay the implementation of the prior conditions by the government although it had agreed to them in the March 2021 second to fifth staff review with two damning statements in the report: (i) “the authorities efforts shifted towards expansionary macroeconomic policies and reversed some earlier reforms in an attempt to spur growth.”
This statement implies the end of the expansionary macroeconomic policies — evident through the passage of the withdrawal of 343 billion rupees exemptions passed by parliament as well as the passage of the State Bank of Pakistan (amendment) bill granting the apex bank autonomy with favourable comments in the report on the exchange rate which it claimed was broadly in line with fundamentals and that the monetary policy stance was broadly neutral on a 12-month forward basis due to recent tightening; and (ii) with respect to the June 2021 budget, the report adds that on the revenue side, it expected unrealistically strong tax revenue growth (from marked improvements in tax administration and strong domestic demand, notably imports) and high non-tax receipts thus introducing significant risks of fiscal slippages.”
And equally damning was the Fund’s observation based on empirical evidence that exporters’ competitiveness is being negatively impacted by the cascading effect of General Sales Tax as “additional costs are incurred in each segment of the production value chain, which disadvantages them (exporters) at the international market.” The report referred to the ongoing drafting of a personal income tax code which would be part of the finance bill for next fiscal year, envisaging reducing the number of income tax brackets, reducing tax credits and allowances (excepting disabled and senior citizens), introducing special tax procedures for very small taxpayers and bringing additional taxpayers into the net.
Secondly, the Fund urges reprioritization and improving spending efficiency with the need to recalibrate investment spending in line with realistic execution rates, while noting that the supplementary budget supports a sizeable scaling up of development (already slashed by more than 270 billion rupees) and social spending from their FY21 outturn including a substantial expansion of BISP by 50 percent (minus Covid-related one-off spending) and spending on health and education by 27 percent. The reference is perhaps to the Sehat Sahulat Card.
Business Recorder while appreciating the intent of the government to provide free healthcare to all Pakistanis, urges the government to undertake another actuarial study as recommended in 2019 by the German development entity GIZ and the UN to ensure its financial viability. In addition, the report observes that despite recent progress with the social agenda, Pakistan is far from meeting its sustainable development goals (SDGs).
Thirdly, with respect to the third major claim by the administration of taking effective measures to mitigate the impact of climate change through its 10 billion tree tsunami (2019-23) the report maintains that while “Pakistan is a small emitter of greenhouse gases (GHG) in per capita terms, but still ranks among the largest 20 GHG emitters worldwide in absolute terms.
The main sources are carbon dioxide in the energy sector and methane in agriculture…key measures should include reforming energy prices, subsidies, and taxes (which could also help mobilize significant and easily collected revenue, for example, to help finance the SDGs), implementing technology-based measures for green and inclusive development and garnering more external support in the form of financing and know how transfer.”
And finally, on the housing and construction sector which is another flagship initiative of Prime Minister Imran Khan, the report advises to “unwind these measures out of concerns for financial stability.”
The criticism in the Fund report, sometimes carefully worded and at other, not so diplomatically, may, as per the government’s critics, reflect the Fund’s rebuttal of the government’s assertions whereas the administration would no doubt refer to the changing geopolitical considerations as the reason behind such thinly veiled critique of its policies, including the Prime Minister’s flagship programme.
Copyright Business Recorder, 2022
Comments
Comments are closed.