EDITORIAL: The schedule of reviews shared in the staff-level agreement report uploaded on the International Monetary Fund website last month noted 25 September as the approval date of the 37-month 7 billion dollar Extended Fund Facility (EFF) arrangement with disbursement of 760 million dollars and the first quarterly review was scheduled for 15 March 2025 which, if successful, would lead to the disbursement of another 760 million dollars.
It is therefore little wonder that there is intense speculation within the country as to which of the key agreed time-bound quantitative conditions/benchmarks were unmet compelling the advent of the IMF’s mission to Pakistan with the objective of either setting new time-bound conditions and/or implementation of agreed contingency measures.
An exclusive report in Business Recorder indicates that the mission has met with the Federal Board of Revenue (FBR) with a projected shortfall of 230 billion rupees by the end of December this year.
The Tajir Dost Scheme has certainly not yet been launched due to traders organised resistance (which should have been expected based on past precedence), with reports suggesting that talks have concluded successfully with FBR officials acquiescing to all the traders’ proposals; yet while some senior officials of the FBR now claim that the budgeted amount under this head was only 50 billion rupees yet at the launch of this programme in March 2024 — launched on the media amidst much fanfare, but never implemented — the projected revenue was around 400 to 500 billion rupees.
Therefore, while the exact revenue shortfall from the target from this scheme is not known due to widely disparate estimates between the first launch to today, yet the total revenue shortfall of 230 billion rupees is significant enough for the Mission’s arrival in Pakistan.
One obvious way out of this shortfall, which would be fair as well is for the government to defer the 20 to 25 percent budgeted pay rise for its employees who constitute 7 percent of the total labour force and whose salaries are paid for at the taxpayers’ expense while the remaining 93 percent of the country’s labour force is struggling not only with minimal if any wage increase for the past four to five years but also grappling with the massive rise in inflation during these years.
The government instead has, like its predecessors, unfortunately opted for cutting down on development outlay budgeted for the year, a prime mover of Gross Domestic Product (GDP) growth, given that private sector output remains dampened notwithstanding claims to the contrary by SBP surveys.
The budgeted 3.5 percent growth has already been downgraded to 3 percent by donor agencies and the Monetary Policy Committee (MPC) in its 4 November ruling downgraded it to between 2.5 to 3.5 percent with domestic economists pointing out that citing 3.5 percent as within achievable limits may be due to pressure, tacit or otherwise, as opposed to any deeply held perception that it will be attained.
Be that as it may, lower growth implies lower tax collections and in this context it is relevant to note that the discount rate remains much too high even at the recently reduced 15 percent for the private sector and, as succinctly stated in the IMF report, “the balance sheets of the three parties, the sovereign (government), commercial banks, and the central bank have become highly interconnected.
This complex tripartite relationship means that developments or actions in one domain (e.g., fiscal, monetary policy and the banking sector) can have wide-ranging effects across the economy.” In addition, ever-rising administered prices as per the Fund conditions, notably of electricity and petroleum products, are further raising input costs and acting as a deterrent to private sector output.
Business Recorder has been consistently maintaining that there is not only a need to be realistic in agreeing to tax targets with the Fund, a trend that accounts for the Fund now specifying contingency tax measures in the event of a failure to meet the agreed target, but also that any increase in the government’s leverage to phase out harsh politically challenging conditions (administered prices and the prevalence of indirect taxes whose incidence on the poor is greater than on the rich to name just two) require voluntary sacrifice by all the elite recipients of current expenditure at least in the current fiscal year.
Copyright Business Recorder, 2024
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