An adjustment in Pakistan’s policies and reforms, increase in revenue collection, ambitious tax policy reforms and broad-based fiscal structural reforms are the need of hour.
These views were expressed by International Monetary Fund (IMF) Country Representative Teresa Daban Sanchez during a keynote session with the Sustainable Development Policy Institute (SDPI) on Wednesday. She said that the Extended Fund Facility (EFF) to Pakistan was all set to achieve some major goals including a revenue-based fiscal sustainability.
It is being achieved by removing exemptions and privileges, enhancing social and productive spending, coordination with provinces, and elimination of quasi-fiscal circular debt and SOE losses.
Sanchez added that a market-determined and flexible exchange rate as well as an independent central bank with primary focus on price stability was among the key goals for the country.
Moreover, strengthening of social safety net to protect the most vulnerable is a key requirement in addition to strengthening institutions and bringing reforms.
While shedding light on the impact of Covid-19, she remarked that the economy was on track with 2.4% growth till March 2020. However, after May 2020, it witnessed a decline of 1.5% as resources were diverted towards Covid-19 mitigation and containment efforts.
She added that Pakistan received $1.4 billion from the IMF (Rapid Financial Instrument) in April 2020 and also received funds from the World Bank and Asian Development Bank to mitigate the challenge.
“In the current situation and amid the third wave of the pandemic, the growth is projected at 1.5% of GDP (gross domestic product) and inflation will remain volatile,” Sanchez said.
The IMF official added that the monetary policy was accommodative and fiscal policy was prudent but public debt guarantees increased to 92.8% of GDP.
In the energy and gas sector, a recalibration of the circular debt management plan (CDMP), which includes short- and medium-term measures like increasing revenue by aligning power tariff with cost recovery levels, reducing generation costs, streamlining fiscal impact, would be important steps.
It can be achieved by targeted subsidy and governance issues like amendment to the Nepra Act, reduction in transmission and distribution losses and theft that are the major pillars for the programme.
“Although the Covid-19 shock temporarily suspended the progress of EFP, the authorities remained committed to the ambitious policy actions and structural reforms to strengthen economic resilience, advance sustainable growth and achieve the EFP medium-term objectives,” she added.
In response to several questions by the audience, Sanchez said that the duration and size of the EFF programme would be the same, even after the third wave. It will focus on collaboration and improving the economy of the country.
She was of the view that policies needed to be adjusted with reality and if there was any need in the third wave shock, then the programme would be adjusted accordingly, as the package was not a straitjacket.
About the autonomy of regulators and a perception that it was being compromised under the IMF programme, she reiterated that all the reforms that had been recommended were long due and were necessary for the help of the poor and vulnerable.
She explained that the IMF could not dictate the country’s legislation and the institution, but just play an advisory role upon request.
On tax reforms, she said that the tax policy reforms needed to be very comprehensive and deep and the corporate income tax and personal income tax both needed to be made sure in the country.
Commenting on the circular debt, the IMF country representative said that debt sustainability was the main role of the IMF in any country and with the right policies and improved management, countries could better manage their debt profile.
“Pakistan is doing well in this area of the programme. SOEs management is the major component for the betterment of the country.”
Talking about the country’s compliance with the Financial Action Task Force (FATF), Sanchez said that the progress so far and plan for the future was encouraging regarding FATF, however, the plan execution would need more rigorous measures.
Published in The Express Tribune, April 15th, 2021.
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