‘Meeting IMF terms won’t overburden common man’

By Ali Imran

ISLAMABAD: Minister for Planning, Development and Special Initiatives Ahsan Iqbal Thursday said that the government would meet the conditions set by the International Monetary Fund (IMF) to complete the programme, but common man would not be affected by the decisions.
He said the IMF agreement was hanging over the government which it had to negotiate with the Fund. The previous government, he said had recklessly agreed upon the programme, therefore the current government has no option but to continue the programme.
“We have to do lot of adjustments, but we will take decisions in the larger interests of the state,” he said and hastened to add that “we will try to put minimum burden on the poor and common people”. He was addressing at an event here at the Pakistan Institute of Development Economics (PIDE).
The minister said Pakistan’s economy was in shattered condition when the current government took over and keeping in view the short available time, it decided to take short term measures to turnaround the economy.
Ahsan Iqbal stressed the need for mobilizing all available resources to increase productivity and exports of the country so as to get rid of foreign loans on permanent basis. “Pakistan’s productivity capacity is very low as compared to the standard average”, he said adding that in agriculture sector alone, the country could earn billions of dollars by taking measures to increase the crops’ yield per acre.
For instance, he said the per acre wheat production in Pakistan can be increased by up to 80 percent by improving on-farm management. Similarly, he said, “our industrial production possess numerous inefficiencies due to which we are not competitive with the world”.
The biggest challenge in 75 years, he said is that Pakistan’s productivity capacity could not be integrated with the global markets. Ahsan Iqbal pointed out that export-led growth is important to resolve the balance of payment issues, therefore he stressed the need to do all measures to earn maximum foreign exchange reserves.
“We have to do resource mobilization and also have to increase tax to GDP ratio up to the global average of over 18 percent which is only at 09 percent in Pakistan”.
He said in previous four years, the debt servicing burden had increased to Rs 4500 billion, so if the resources are not mobilized, the country’s all collected tax would be spent on the debt repayment.
Furthermore, he said increasing investment was another important factor to ensure sustainable economic development.
“If the Pakistani investors only bring out their money and invest in the country, we will not need to go to the IMF or any other lender”, he said adding that foreign direct investment would also have to be increased up to $25-30 billion per year. He also asked the Ministry of Commerce to take urgent measures to increase the country’s exports from current $32 billion to over $100 billion in shortest possible time.
Meanwhile, in the power sector, the government is considering raising the electricity tariff from Rs4.50 per unit in the first phase and Rs3 per unit in the second phase within the ongoing fiscal year.
The government’s envisaged FBR tax collection target was Rs7,470 billion, however, FBR fell short by Rs225 billion until December. The collection in line with the IMF’s target was missed out by a margin of Rs82 billion for the end of December 2022.
The FBR’s internal assessment shows that the tax collection machinery will be facing a shortfall of Rs170 billion for the ongoing fiscal year, so the tax collection will be standing at Rs7,300 billion against the initially envisaged target of Rs7,470 billion.
To fulfil the shortfall by the FBR, the government will have to take extra measures that could fetch Rs300-400 annually. Imposing additional taxes and rate hikes would be an excruciating process, which the government would undergo through a possible presidential ordinance.
The Pakistan Muslim League Nawaz (PML-N) government plans to slap a 1 to 3% flood levy on imports to fetch Rs100 billion.
Secondly, the government is also considering slapping a 60 to 70% tax on commercial banks’ alleged earnings through manipulation of the exchange rate. The banks estimated earned around Rs100 billion in extraordinary profits in the first nine months of the calendar year 2022.
An increase in the Federal Excise Duty (FED) on sugary beverages, and cigarettes and slapping GST on POL products is also on cards. However, in the recent past, Finance Minister Ishaq Dar sternly opposed slapping 17% GST on POL products, arguing that it would be highly inflationary.
It is yet to be seen how the government will respond to the IMF’s demand to allow the depreciation of the rupee against the US dollar. Finance Minister Ishaq Dar will never let the depreciation of the exchange rate free fall but he will have to generate dollar inflows to improve the dollar liquidity crunch in weeks and months ahead.