Finance Minister Shaukat Tarin rules out possibility of Pakistan's exit from IMF programme

• Financing gap of $20 billion had left no other option for govt but to go to IMF and accept their tough conditions, says Shaukat Tarin.
• The finance minister says he was making all-out efforts to get relaxation from IMF on tough conditions.
• Pakistani authorities and IMF, for the time being, have agreed to continue talks to narrow down differences.

ISLAMABAD: Federal Minister for Finance Shaukat Tarin has said that it is not possible for Pakistan to come out of the IMF programme, as he agreed to review the Federal Board of Revenue's (FBR) powers of arresting taxpayers in consultation with senators, The News reported Thursday.

The federal minister's comments came during his discussion with the Senate Standing Committee on Finance in Parliament House on Tuesday. The meeting was held under the committee's head, Senator Talha Mehmood's, chairmanship.

Pakistani authorities and IMF, for the time being, have agreed to continue talks to narrow down differences, but the IMF-sponsored programme has been put on halt mode as the international money lender conveyed that the sixth review under the Extended Fund Facility (EFF) will be accomplished in September this year instead of July 2021.

“Pakistan has forwarded its desire to combine the sixth and seventh reviews jointly under EFF in September 2021,” said official sources.

Tarin told the committee that the government would rewrite powers of the FBR to arrest and prosecute taxpayers involved in income concealment.

The government had decided that tax notices would be dispatched through a third party, the finance minister told the committee.

He said Pakistan’s economy was facing a difficult situation as the current account deficit (CAD) had peaked at $20 billion and the government accepted the tough conditions of the IMF programme.

The IMF-provided loan programme was frontloaded under tough conditions as the discount rate was hiked to 13.25%, so the debt servicing  doubled, he said.

The minister said that he did not agree to the IMF condition of increasing personal income tax to collect an additional Rs150 billion in the next fiscal year, adding that he plainly informed the fund's team that he would not increase the burden on those who were already paying their taxes.

He said he would increase taxation his own way.

A financing gap of $20 billion, he said, had left no other option for the government but to go to the IMF and accept their tough conditions, such as hiking discount rate, devaluation of the exchange rate, and increasing power and gas tariff.

"We have gone to the IMF because the country did not have dollars for repayment of past loans," he said, adding that $10 billion short-term borrowings were obtained by the previous government.

He said that now the strategy was to move towards an inclusive, sustainable, and long-term growth trajectory to create more jobs.

The minister argued before the committee that he was not in a position to commit that the GDP growth would be sustainable or not because it would be known after three to four years whether the country was heading towards sustainable growth or it was another boom-and-bust cycle as experienced in the past.

However, he said he could guarantee that the measures taken by the government in the budget would bring about inclusive growth, as for the first time, a bottom-up approach was adopted.

Tarin identified the power sector as a major challenge of the economy and the government would be dealing with a capacity payment issue as well as improving the distribution companies to privatise them.

Meanwhile, PPP Senator Sherry Rehman, speaking on the occasion, said as soon as the mini-budget started rolling, an increase in petroleum prices was witnessed.

The IMF programme was being criticised because it was frontloaded that made the life of common people more difficult, the senator said.

In response to Senator Rehman's question, the minister reminded her that “you and I had a discussion on the IMF programme during a cabinet meeting in 2008 and I told you if you had other options, then go and bring the money (dollars) from someone else."

He said the IMF programme does not happen with consensus because “you are borrowing and they are the lender”.

The minister said that the present government was obtaining loans to repay the past ones, adding that the debt to GDP ratio was brought down from 89% percent to 86% in one year of the government when all other countries' debt to GDP ratio increased due to the coronavirus.

The minister said that he was making all-out efforts to get relaxation from IMF on tough conditions.

PML-N Senator Saadia Abbasi pointed out that unemployment and rising inflation were making the lives of common people difficult, to which the minister replied that the only way to attack poverty was to increase income.

“Let us attack poverty through direct interventions,” he added.

The chairman of the Senate panel, Senator Mehmood, said that there was a dire need not to look at businessmen with suspicion and it could be done by bringing a paradigm shift.

To another question raised by MQM-P Senator Faisal Sabzwari, Tarin replied there were some deficiencies left in the last 7th NFC Award as he now thought that the provinces' share in the federal divisible pool should have been linked with their own revenue generation efforts.

He said that the Centre also failed to jack up the tax-to-GDP ratio from 10% to 15%.

Tarin said the agriculture income tax could generate Rs60 to Rs70 billion despite having a contribution to GDP in the range of 20% per annum.

The finance minister said two provinces had agreed to allow the FBR for making agriculture income tax collection on their behalf.

In response to another question by Senator Sabzwari, he pointed out that the agriculture sector, whose share in the GDP is 22%, was out of the tax net and provincial finance commissions have not been constituted.

“The agriculture income tax is a black hole and there is a need of progressive thinking to solve this issue” he concluded.