ISLAMABAD: The government has committed to the International Monetary Fund (IMF) that it would contain non-priority spending, increase tax revenues by 3 percentage points of GDP over the programme and continue timely implementation of energy tariff adjustments to minimize fiscal risks while promptly implementing fundamental cost-reducing reforms to restore the sector’s viability.
In the Letter of Intent (LoI) jointly signed by Finance Minister Muhammad Aurangzeb and State Bank of Pakistan (SBP) Governor Jameel Ahmed, it was stated that Pakistan still faces large challenges.
The economy remains highly vulnerable to external and domestic shocks, and shortfalls in external financing or policy weakening could jeopardize prospects for continued stability and sustainability. More broadly, structural deficiencies – including distortions created by the large role of the state in the economy and insufficient investment in physical and human capital – have left Pakistan with relatively low productivity and living standards, a weak export sector, and highly vulnerable to shocks.
The Pakistani authorities stated, “We have developed a comprehensive programme, which is fully supported by all provincial governments, and is based on policy efforts to strengthen public finances, reduce inflation, and advance reforms to reduce the role of the state, improve governance and public services, and spur private sector-led growth.
“In particular, key targets of our programme included: increase tax revenues by 3 percentage points of GDP over the programme, including through greater provincial effort, to further drive fiscal consolidation, lock in debt sustainability, and create the space needed to expand the generosity and scope of our social safety net and rebuild education and health spending; tight monetary policy to re-anchor inflation expectations to continue the management of inflation down toward our target while cementing FX flexibility, continuing to rebuild international reserves, and maintaining financial stability; continue timely implementation of energy tariff adjustments to minimize fiscal risks while promptly implementing fundamental cost-reducing reforms to restore the sector’s viability; fully implementing our SOE governance framework across all SOEs, enhancing the Sovereign Wealth Fund’s governance, advancing other governance and anti-corruption reforms, gradually relaxing trade barriers, and adopting policies to build climate resilience.”
The authorities further resolved to timely implementation of its programme, and have already implemented several measures, including (i) the adoption of the fiscal year 2025 budget, which targets an underlying 1.0 percent primary surplus (2.0 percent in headline terms) driven by revenue improvements while enhancing social protection and human capital expenditure; and (ii) increased electricity and gas tariffs to prevent any further accumulation of circular debt and minimize fiscal risks.
The authorities further stated that all provinces agree that they will not introduce any policy or action which could be considered to undermine or run against any of the commitments or policies outlined in this letter or MEFP.
“We will consult with the IMF before modifying the measures contained in the MEFP or before adopting new measures that deviate from the goals of the programme, in accordance with the Fund’s policies on such consultations. All provinces agree to consult with the IMF through the federal Ministry of Finance before modifying or adopting any measures that could affect or undercut the programme specified here or which deviates from the goals of the programme,” Pakistani authorities added.
Copyright Business Recorder, 2024
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