LAHORE: “The purpose of the IMF programme is to promote macro-economic stability in Pakistan. The fiscal policy and monitory policy should promote and further the same vision”.
These were the views of Resident Representative of International Monetary Fund (IMF) Esther Perez Ruiz while speaking at the Lahore Chamber of Commerce and Industry on Tuesday.
President LCCI Mian Nauman Kabir, Vice President Haris Ateeq and the LCCI Executive Committee Members were present on the occasion.
Esther Perez Ruiz further said that the aim of the IMF programme is to bring a set of policies in Pakistan that can promote sustainable and inclusive policy growth.
She said Pakistan’s tax to GDP ratio is very low, the purpose of eliminating sales tax exemptions through the recent finance act is to reduce the complexity in the taxation system. She said that Pakistan should not only look to take measures related to tax but there are other ways to enhance the competitiveness of the economy.
LCCI President Mian Nauman Kabir said that being the premier business support organization of the country, LCCI is quite sensitive about the impact of Pakistan’s ongoing 22nd IMF programme on the national economy and particularly on the private sector growth. Hopefully, we will witness the successful completion of this programme as well just like the 21st programme.
He said that this meeting will give the IMF an opportunity to understand the perspective of the business community about the ongoing IMF programme. Secondly, it gives us a chance of developing a better understanding of IMF policies and also know about the major success stories related to IMF programmes adopted by other countries.
He said that there is a need to widen the tax base by bringing more people into the tax net rather than burdening the existing taxpayers. He said government has the data of all the industrial and commercial electricity connections which can be used to broaden the tax net.
Mian Nauman Kabir said that we are well aware of the fact that Pakistan has just received the tranche of around US one billion dollars from IMF under the Extend Fund Facility for Pakistan, following the successful completion of the 6th review. This takes the total disbursements under the IMF Programme to around 3 billion dollars. In recent decades, many developing countries including Pakistan have resorted to loan programmes of the IMF. Given the broad reach of IMF programmes, it is important to analyze the impact of these programmes for economic growth and other dimensions of economic performance, he added.
President LCCI said it is also imperative to see if the developing countries benefit from access to IMF programmes or would the countries be better off if these programmes did not exist. It has been observed repeatedly that IMF programmes often result in interest rate hikes, devaluation of the local currency, and consequently high inflation.
The IMF conditions also include a hike in the power tariffs and an increase in taxation rates. One recurring theme that has been observed is that IMF packages only help overcome immediate financial difficulties but do not address their root causes.
In the context of Pakistan, these measures have the effect of increasing the cost of doing business and hampering the competitiveness of our private sector which is already facing stiff economic challenges.
He said to fulfill the conditions of the IMF programme, the government has recently withdrawn the sales tax exemptions on imported plants and machinery through the mini-budget. This measure would make it difficult for our industrial sector, particularly SMEs to undertake technology up-gradation and hence the export competitiveness of our Industrial sector would be adversely affected.
He said LCCI has always advocated for stability in the exchange rate. The massive and abrupt devaluation that has taken place in recent times has resulted in an exorbitant increase in our import bill with minimal benefit to exports. Since July 2019, when Pakistan entered the recent IMF programme, a devaluation of more than 10 percent has taken place. Furthermore, in the period leading up to the commencement of the recent IMF programme (Aug 2018-Jul 2019), a devaluation of around 28 percent took place, adding that as a result of devaluation, the trade deficit has increased exorbitantly. In the first seven months of the current financial year, the imports have surpassed 46 billion dollars which are 58% higher as compared to the same period in the previous financial year taking the trade deficit to 28 Billion Dollars. This has contributed to pushing the inflation rate to 13 percent in January 2022. Since our industries are heavily reliant on imported raw materials and machinery, the abrupt devaluation disrupts the entire business cycle.
LCCI Vice President Haris Ateeq endorsed the documentation of the economy and said that the businesses are documented and are in the tax net. Those businesses’ tax rates should be reduced.
Copyright Business Recorder, 2022