Cabinet meeting: MoF asked to remove ‘disconnect’ between monetary, fiscal policies

ISLAMABAD: The Finance Ministry has reportedly been asked to remove the disconnect between monetary and fiscal policies as a recent hike in the interest rate by the State Bank of Pakistan (SBP) would have negative impact on debt servicing.

These remarks came during the Cabinet meeting on November 23, 2021 when the conditionalities of the IMF were shared with the members. Briefing the Cabinet on the recent parleys with the IMF, the Advisor to the Prime Minister on Finance & Revenue, Shaukat Tarin apprised that after tough negotiations, an agreement with the IMF at staff-level had been reached with substantive relaxations in the conditionalities.

He said that against the IMF demand for withdrawal of tax exemptions/subsidies to the tune of Rs. 750 billion, Rs. 350 billion had been mutually agreed. The IMF had also asked Pakistan to raise revenue of Rs. 600 billion through PDL however it had been negotiated down to Rs. 365 billion, which would entail an increase of Rs. 4.00 per month per litre. Similarly, the increase in electricity tariff would be considerably lower than originally demanded by the IMF.

According to him, autonomy of State Bank, which had already been agreed, would be ensured through appropriate legislation. Highlighting the importance of the agreement, the Advisor to the Prime Minister on Finance & Revenue informed that this would pave the way for funds from other financial institutions such as the World Bank and ADB.

The Cabinet Members enquired as to whether PSDP would also be revised and how it would impact on the development projects. Minister for Planning, Development & Special Initiatives Asad Umar apprised that PSDP would be slashed from the budgeted Rs. 900 billion to Rs. 700 billion, and some of the development projects would have to be reprioritized, but those being executed under the PPP mode would not be affected.

Referring to the negative impact on debt servicing by the recent hike in the interest rate by SBP, a member stressed on the need to remove the disconnect between monetary and fiscal policies.

During discussion, it was observed with concern about prices of sugar and wheat in Sindh was the highest in the country despite the fact that the province was surplus in both the commodities. It was pointed out that in calculation of SPI, 40% weightage was being given to Karachi, among the urban areas, which was disproportionate and caused undue surge in the SPI.

Advisor to the Prime Minister on Finance informed the meeting that together with Minister for Planning, Development &Special Initiatives, they would hold a meeting with the PBS to consider the issue of weightage given to Karachi.

Minister for Inter-Provincial Coordination Dr Fehmida Mirza emphasized the need to also involve IPC Division together with Minister for Planning, Development & Special Initiatives, while considering the issue of weightage to be given to Karachi. She also alluded to her repeated requests to involve IPC Division in consultations with the provinces on the devolved subjects. This, she felt, was imperative for effective follow-up with the provinces.

The Prime Minister asked the Minister for Inter-Provincial coordination to move a formal proposal so that necessary directions could be given to the concerned Ministries/ Divisions.

Copyright Business Recorder, 2021