EDITORIAL: The Executive Board of the International Monetary Fund (IMF) is scheduled to consider the first review documents of the 7 billion dollars Extended Fund Facility (EFF) programme bringing total disbursement under the programme to 2 billion dollars, as well as approval of the 28-month 1.3 billion dollars Resilience and Sustainability Facility.
The Fund’s website declared the success of the staff-level agreement on the first review on 25 March and the delay of six and a half weeks in placing it before the executive board for consideration, a prerequisite for disbursement, raises questions as to whether the delay is attributable to the finalisation of the report by the mission staff or a busy Board calendar or, as is the consensus within the country, for the authorities to meet all “prior” conditions that were agreed with the mission.
While the report once released subsequent to Board approval will provide details of the prior conditions as well as waivers, failure to meet time-bound quantitative conditions as well as structural benchmarks with new timelines agreed, that were requested by the government and granted by the Fund yet with the time of the budget a little over a month away the Fund has undoubtedly undertaken a preliminary review of the main expenditure and revenue items.
In this context, one would hope that the Fund and the government carefully review and meticulously refine some of the 2024-25 budgetary allocations and revenue sources as the poverty levels have been rising, and are at a disturbing 44 percent according to independent economists though the World Bank, reliant on government data, places it at 42.4 percent.
It is therefore advisable for the government to desist from overarching reliance on easy to collect indirect taxes whose incidence on the poor is greater than on the rich and which at present account for nearly 80 percent of all Federal Board of Revenue collections — 60 percent as declared in the budget under indirect taxes and around 75 to 80 percent of the remaining 40 percent dishonestly credited under direct taxes even though imposed as withholding tax in the sales tax mode. In other words, the current reliance on Benazir Income Support Programme in the EFF programme design will do little to reduce the poverty levels in this country.
Business Recorder has been in the forefront of advising the government to slash its current expenditure that was inexplicably raised by a whopping 21 percent in the current year through voluntary sacrifices by the major recipients.
Salaries that were raised at the taxpayers’ expense by a whopping 20 to 25 percent this year need to be frozen for next year. Procurement of all but critical expenditure would need to be cut and the much delayed pension reforms (for civilian and military personnel) that are also entirely dependent on taxes collected, need to be reformed, and hopefully employee contributions can be initiated from next fiscal year.
And last but not least, the government (federal as well as provincial) would be better advised to follow the Chinese development route – strive to go up the value-added ladder, not like Pakistani administrations by increasing exports of existing value-added products like textiles, but through massive injection in education to enable the public to go up the scale of producing ever more technically advanced products.
The IMF in its October 2024 documents urged the government to desist from incentivising manufacturing and agricultural sectors, given that “the state’s support of businesses through subsidies, favourable taxation arrangements, protection and governmental price setting has undermined the development of a dynamic and outward oriented economy….
Despite all this support, the business sector has failed to become an engine of growth, and the incentives eventually weakened competition and trapped resources in chronically inefficient (including perpetually “infant”) industries.”
To conclude, one would sincerely hope that there is a programme redesign that would increase the government’s leverage with the Fund staff in meeting unrealistic revenue targets while at the same time reducing its own expenditure priorities that are deepening poverty levels.
Copyright Business Recorder, 2025
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