EDITORIAL: Most of those who have read the entire International Monetary Fund (IMF) sixth staff review report uploaded on its website must have made two extremely disturbing observations. First, the report’s prior and post sixth tranche release conditions and recommendations, is having serious implications on the country’s politics.
The Fund’s emphasis on passage of the Tax Amendment (Supplementary) and State Bank of Pakistan (amendment) bills by parliament, as opposed to the issuance of ordinances by the executive, amounted to dictating the legislative process to be followed and put the government in a very tight spot within its ranks as well as coalition partners.
Some critics refer to the report’s comment on the issues prevailing in the tax system as challenging the country’s sovereignty by questioning the constitutional construct of the country as noted in Annex III titled Pakistan is a Federation with Taxation Powers Shared between the Federal Government and Provinces: “a good being sold (sales tax paid federally) can have services input taxes from multiple provinces that need to be credited, as well as sales tax paid on the purchase of any goods inputs.
The current system makes this crediting incomplete”, with a footnote adding that “other challenges are administrative in nature, relating to information sharing and refund delays, which are often unpredictable.”
This critique is strengthened by the World Bank’s reported offer of 350 million dollars in return for the provinces implementing the Federal Board of Revenue (FBR) property valuations and uniform sales tax on goods and services (the latter a provincial subject as per the constitution) across the country. This is simply not doable in the ongoing political context.
The Fund’s refusal to support expansionary macroeconomic policies that were implemented after passage of the federal budget in June last year would have serious negative implications on the growth rate, inflation and employment opportunities – elements that would also have implications on the ruling party’s political fortunes.
And the report challenges the Prime Minister’s main if not the only election slogan of not letting the corrupt go free by observing that “major shortfalls remain in taking anti-corruption and good governance actions, including in establishing a robust asset declaration system, and in ensuring transparency around Covid-related spending and procurement.”
And secondly, the dismissive language used with reference to all components of the Prime Minister’s signature social sector Ehsaas programme - free credit to various sectors under the 1.63 trillion rupee Kamyaab Jawan programme, with an estimated 25 billion rupees subsidy for the current year, and 120 billion food subsidy ration card scheme accounting for a new structural benchmark by end April notably to establish an appropriate development finance institution to transfer these refinancing schemes to the government, to periodic inflation update on all Benazir Income Support Programme cash transfers and advising reprioritization and improvement in spending efficiency of programmes.
The revenue target set in the budget passed by the national assembly in June 2021 is referred to as unrealistic despite the Finance Minister highlighting innovative ways to widen the tax net and launch third-party audit.
This is not to argue that criticism was not justified on economic grounds; Business Recorder also brought all these factors to the notice of the government and sadly to no avail, but the fact that during the previous reviews criticism was couched in more diplomatic language though the negotiations across the table were reportedly equally honest and open.
While the multilaterals are bound to share the draft of any report to be uploaded on their website one would assume that perhaps as evident in the past three years the voluminous report was not carefully read by the Pakistan authorities.
It is, however, important to note that the Finance Minister has laid the onus of strict upfront harsh conditions on geopolitical changes in the region yet no doubt the Fund may legitimately point out that the upfront harshness of the conditions was necessitated by successive Pakistani administrations, including the incumbent one, of either not implementing or reversing structural reforms as soon as the balance of payment position strengthened and that it was time to tighten the reins significantly. This is backed by Box 1 in the report titled ‘Pakistani authorities implementation of past Fund advice’.
There is no doubt that Pakistan failed to implement reforms in the past, a trend that continues to this day, and to blame one’s predecessors three and a quarter years into a five-year term will find little traction as seeking public office proactively anywhere in the world means that the existing state of affairs, however dire, are a given and appropriate mitigating measures to be put in place an essential requirement.
The successors of the current administration should be under no illusion that they will be able to renegotiate the terms though one would hope that they would slash current expenditure (raised from 4.3 trillion rupees in 2018 to over 7.5 trillion rupees today), and implement tax reforms that do not increase reliance on indirect taxes.
Copyright Business Recorder, 2022
Comments
Comments are closed.