ISLAMABAD: The International Monetary Fund (IMF) Executive Board’s approval of $7 billion Extended Fund Facility (EFF) Programme would be on time, as Pakistan is at an advanced stage in getting assurances around external financing.
This was stated by Finance Minister Muhammad Aurangzeb in a televised speech on Tuesday who categorically rejected traders’ call for tax withdrawal and said every sector of society will have to pay taxes. Aurangzeb also expects decline in policy rate with a reduction in inflation.
Talking about IMF programme, the minister said that without provincial governments and chief ministers’ engagement, the staff level agreement was not possible.
IMF, Pakistan reach staff-level agreement on $7bn Extended Fund Facility
The international programmes are looking at sovereign which are federal and provincial governments, said the minister, adding that the programmewould be taken forward in consultations with all provinces and will make it as successful as the last programme. “For this we need reforms to stand on our feet and deliver structural reforms”, he added.
Aurangzeb categorically rejected traders’ call for tax withdrawal and said every sector of society will have to pay taxes. He further said that there is no more space as the salaried class and manufacturing industry are already paying above what they contributing into the GDP.
The minister requested all the potential taxpayers to come forward and contribute to the country’s economy. He particularly requested wholesalers, retailers and distributors to contribute in the economic uplift of the country, adding the government would try its best to bring simplicity in the tax system and accommodate their recommendations.
However, the minister stated in clear terms that government was not going to take back its decision as it would be counterproductive and create difficulties for other sectors. “One thing I want to be very clear, this is not going to be taken back, because if we do this, the other sectors, who are already frustrated, would go in further difficulties.”
He pointed out that last year, tax revenues saw a significant increase of 29 percent, but he cautioned that this level of growth is unsustainable without further reforms.
Aurangzeb reaffirmed the government’s resolve to carry forward the reforms agenda, aiming at broadening of the tax base and rightsizing of the federal government to achieve macroeconomic stability what he called “basic hygiene” for sustainable growth.
The minister said 43 percent of sectors in the economy were paying less than one percent tax, curtailing the tax-to-GDP ratio to as low as 8.8 percent, adding that this ratio needed to be lifted up to over 13 percent. He called for a concerted effort to raise the tax-to-GDP ratio beyond the current 8.8 percent, stressing the importance of collective responsibility among all sectors of the economy.He said the current 8.8 percent tax-to-GDP ratio is not sustainable.
Commenting on the shortfall of around Rs98 billion in revenues, the minister said the government paid around Rs132 billion in refunds to the exporters, showing 44 percent year-on-year growth.
Aurangzeb also mentioned the recent measures taken to improve the economic framework, including reforms aimed at enhancing the efficiency of the FBR and broadening the tax base.He reiterated that these reforms are vital for ensuring that the economy remains on a stable footing and can support the government’s broader development goals.
The finance minister said the inflation which peaked up to 38 percent has come down to 9.6 percent in August 2024 as it was recorded at 23.7 percent last year.
As long as inflation comes down, the policy rate would go down accordingly, hence help economy, particularly the industrial sector.
Sharing performance of remittances sector, the minister said, remittance remained all-time high in July 2024. On the future of key lending rates set by the central bank, Aurangzeb expects the Monetary Policy Rate to decline with a reduction in inflation.
The minister, who is also chairman of the High-Powered Committee on Rightsizing of the federal government, also expressed resolve to right-size different ministries and autonomous bodies to bring down the size of federal government.
He said six ministries have been given two weeks to prepare implementation plan for rightsizing, keeping in view their employees, resources, properties and litigation matters. “Once the programme is executed, other ministries would be taken for the same process.”
He said, ministries and autonomous bodies were given opportunity to share their performance and justify what they have contributed in national economy. He said, the government would need to bring legislative changes in Civil Servant Act, 1973, with the help of coalition partners to carry forward the rightsizing process smoothly.
Aurangzeb also shared positive developments related to economy, saying that the measures taken by the government during the past six months have started yielding real results in terms of macroeconomic stability.
He said foreign exchange reserves were more than two months of import cover and stood at over $9 billion dollars. “Currency is also stable, whereas, the twin deficits, particularly, the Current Account Deficit is in check.”
He said these positive developments resulted in the clearance of all the backlog of the past 18 to 24 months in terms of import LCs, import contracts, dividends or profit remittances that had stopped.
Talking about international acknowledgement of measures taken by the government, he said, two rating agencies Fitch and Moody’s both had increased rating by one notch. This is an external recognition that the economy has been put in the right direction.
“We must recognise the positive developments and continue working towards a sustainable economy,” he said, emphasising that the government’s economic strategy is designed to create a strong foundation for future growth. Aurangzeb said economic indicators are heading in the right direction. He reaffirmed the government’s commitment to steering the economy toward stability and sustainable growth.
Achieving macroeconomic stability is essential for long-term growth. Macroeconomic stability is the “basic hygiene” that we must get right, Aurangzeb stated.
He explained that this stability serves as the foundation upon which sustainable economic growth can be built. Without it, he warned, any attempts to switch from stabilisation to growth could be premature and potentially destabilising.
He acknowledged that while the journey toward a sustainable economy is long, the steps being taken now are crucial for securing a prosperous future for Pakistan.
Copyright Business Recorder, 2024