Pakistan Struggles To Repair Fiscal Pace With IMF

Pakistan and the IMF have not reached an agreement yet on fiscal framework, as Islamabad makes efforts to convince the IMF officials to approve 1.5% to 2% of its GDP’s fiscal adjustments, which are manageable in the upcoming budget.

The News reporter was informed by the top official that economic managers are facing a difficult situation, as on one side they have to convince the International Monetary Fund for a slower pace of fiscal adjustments, whereas on the other side they also must gain the political leadership confidence over the tough measures.

On Monday Esther Perez Ruiz the IMF's resident chief stated that the discussions with Pakistan officials are ongoing and very constructive, aiming to reach an agreement for enabling the pending conclusion of the 2019 extended Fund Facility (EFF) seventh review. 

The efforts of authorities are recognized by IMF bringing fuel prices in line with current international prices which is a part of a comprehensive set of reforms and policies for restoring macroeconomic stability of the country and meeting the program objectives.

She also said that in this regard the next fiscal year budget is a key policy instrument. Through close engagement and continued dialogue with Pakistan, the IMF is looking forward to facilitating review progress.

Although, Pakistani officials especially the Ministry of Finance along with the Federal Board of Revenue (FBR) team needs to convince the specialist from IMF on the fiscal front that the measures taken for taxation would able to increase the tax base as well as tax collection above Rs7.25 trillion up to Rs7.5 trillion without causing deformation in the tax system.

On contact for comments, the top government official stated that the government is still trying to convince the International Monetary Fund on the pace of the adjustment on the fiscal front, which will be disclosed in the upcoming budget, as the government wants the range of fiscal adjustments from 1.5% to 2% of GDP, which is around Rs1.5 trillion to Rs2 trillion in the upcoming budget by curtailing expenses and raising revenues of the country.

The reformed Personal Income Tax (PIT) is placed by IMF as a structural benchmark, whomever the FBR wanted to avoid the increase in tax rates on lower slabs especially and reduce slabs number from twelve to six in coming budget.

However, the federal minister of finance publicly refused to increase the rates of PIT in the upcoming budget, insiders saying that everything was open for discussion to take IMF in confidence before the budget announcement in the next few days. The 2022-23 budget would be announced on June 10, 2022.

The FBR is putting efforts into convincing the IMF to apply increased rates on higher-income slabs and also considering imposing a luxury tax on higher-income slabs on top of the income tax rates in the upcoming budget.

Although, FBR is also identifying the exemptions from income tax in the upcoming budget. Different types of income tax exemptions are under consideration in the budget for 2022-23 to be withdrawn.