EDITORIAL: Federal Finance Minister Muhammad Aurangzeb, during a recent briefing to the National Assembly Standing Committee on Finance, categorically stated that the International Monetary Fund (IMF) is proceeding smoothly with no disruptions as the government remains fully committed to meeting all the time-bound quantitative conditions and structural benchmarks.
However, notwithstanding the firm resolve of the government in this matter and acceptance of hiccups in implementation that have resulted in missing of certain targets agreed with the Fund, there are four obvious sources of concern with respect to delays in implementation of the reforms agreed under the ongoing 7 billion dollar 37-month-long Extended Fund Facility programme.
First and foremost, the programme stipulates that budgeted or pledged assistance by the three friendly countries is a prerequisite for a tranche release (Saudi Arabia has extended $3 billion deposits term by one year).
Economic Affairs Division data uploaded on 27 November 2024 revealed that the 9 billion dollars budgeted for the year as time deposits from two of the three friendly countries - 5 billion dollars from Saudi Arabia and 4 billion dollars pledged by China – had not been credited till end October this year.
Given that these time deposits are borrowings and not grant assistance an in-house option to deal with this situation would have been to slash the budgeted current expenditure for the first quarter that was reliant on this inflow; however, to date there has been much rhetoric of curtailment of unnecessary outlay but nothing concrete has been shared with the public, leading one to assume that the government’s expectation of these inflows remains high.
Second; the budgeted collection of tax on traders and wholesalers who were outside the ambit of income tax, has been watered down considerably – a watering down that as per the FBR press release is damning as it acknowledged the Board’s lack of understanding of the ground realities.
CNIC disclosure of every sale is a major requirement of law now, the traders rightfully demanded a decrease in minimum tax rate as majority of taxpayers were earlier paying minimum tax on grossly suppressed sales. In view of encouraging correct declarations, the rate of minimum tax has been rationalised. Similarly, medium-sized traders have been absolved from their liability as withholding agents to increase ease of doing business.
The trade associations have committed to getting medium- and large-sized retailers registered with income tax imperative.
The associations have also nominated their representatives to evaluate turnover of under-declared businesses and have also joined hands with FBR for dispute resolution in audits.” In addition, the passage of a bill by the Punjab Assembly to tax income of rich landlords, agreed by all provinces with the Fund, was opposed by the Pakistan People’s Party and only time will tell if it will be held hostage to political considerations as in the past.
Third; the government has so far failed to privatise PIA, as it pledged in the loan agreement signed with the Fund, and what is of serious concern is that the nature of this failure, with just one bidder who offered a bid a little over one-tenth of the minimum price, was of epic proportions that led to zero comfort level with the government’s future endeavour to undertake such a task.
The reorganisation of other poorly performing state-owned entities that cost the treasury about one trillion rupees annually has been limited to changing the directors on their board and/or the top leadership of the entity which, as in the past, has not led to any appreciable improvement in its financial position though it has fuelled charges of nepotism and corruption.
And finally; the power sector reforms agreed with the IMF focus, as in the previous 23 programmes, on passing on the onus of sector inefficiencies onto the general public to achieve full cost recovery. There is a need to revisit the heavy annual subsidies, more than half a trillion rupees per annum, for tariff equalization.
The forgoing does not include lack of implementation on other policies agreed with the Fund; notably, to have a positive real effective exchange rate (the State Bank has not updated this since December 2023), shortening of the period for repatriation of export proceeds is still appropriate, given the fragile economy, no meaningful pension reforms and, last but not least, serious governance issues continue to prevail. The proof of the pudding will be in the implementation and not on constant reiteration of pledges.
Copyright Business Recorder, 2024
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