The International Monetary Fund (IMF) has not imposed any precondition on Pakistan to get assistance from friendly countries for the Extended Fund Facility (EFF) programme and there may be some misunderstanding about it. This was stated by Resident Representative of IMF Teresa Daban Sanchez while speaking at 'Paisa Bolta Hai' with Business Recorder Islamabad Resident Editor Anjum Ibrahim on Saturday.
Daban Sanchez clarified that the IMF wanted to ensure that international community's help is available to Pakistan in a sustainable way even beyond the IMF programme of three years. When Fund is engaged with a country, it also brings bilateral or multilateral engagement, she added.
If China and Saudi Arabia had not supported Pakistan then the programme would have been signed in a different way as it is not only China and Saudi Arabia that provides financing but the World Bank (WB), the Asia Development Bank (ADB) and other multilaterals run important portfolios for different sectors of Pakistan. The IMF resident representative further stated that Mike Pompeo's statement that Fund is not going to give money to Pakistan to pay off Chinese loans, has nothing to do with the programme as financial assurance is based on reaching understanding with the country.
Daban Sanchez categorically stated that the budget is fully consistent with IMF programme and is entirely reflected in the Fund document. "We have no issue in this regard. The Fund closely works in coordination with the Ministry of Finance," she said but acknowledged that sometimes there is a difference in classification as to how things are presented by a country and this is not something specific to Pakistan alone.
There is no discrepancy with regard to policy and the approved budget from parliament is fully consistent with the policies that are to be pursued under the Fund programme, she further emphasized.
Daban Sanchez acknowledged concerns about inflation following the challenging taxation target of Rs 5.5 trillion for the current fiscal year from indirect taxes, but added that the budget and the IMF programme is based on short-term and medium-term targets and revenue mobilization is the top most priority of the country in the short run to fulfil essential needs and obligations. But exemptions on many essentials and food items have not been touched, Daban Sanchez added.
Withholding tax in the sales tax mode is creating problems for the people and may be streamlined but when the revenue collection becomes strong, Daban Sanchez clarified.
"The country's debt is very high and Pakistan needs resources for essential needs. The country needs resources for debt servicing and on increasing spending on health and education and other sectors," she added.
Daban Sanchez further stated that those sectors which have been allowed to remain out of the tax system of General Sales Tax (GST) through SROs/exemptions/ special treatment must be brought into the tax system. "Most of the revenue is to come from lifting SROs and this is something that the Fund has been advocating over the years and now there is an opportunity and a good news is that Pakistan is moving in that right direction," she averred.
Contractionary monetary and fiscal policies must be seen in the context of separating interest payment and the rest of spending, the IMF resident representative advised, adding that interest payment is very high because of high borrowing taken in the past to finance the deficit and if interest payment is excluded, the rest of the spending is in capital and social sectors.
During implementation of the EFF, the Fund will be calibrating with the government to assess the needs to protect the poor and vulnerable, which is an overarching objective of the programme, she emphasized.
Pakistan has a long relationship with the IMF and is a very important member of the Fund and is right now in a very challenging economic situation and the Fund is very pleased to assist in dealing with the challenge, Daban Sanchez said.
"We had a very good relationship with former Finance Minister Asad Umar with whom discussions about the economic framework were held when he visited Washington during spring meeting. An understanding with him led IMF mission to visit Pakistan for negotiations," the IMF resident representative revealed.