While the incumbent finance minister Miftah Ismail was still in the air on his way back, having announced successful conclusion of an understanding with the International Monetary Fund (IMF) on loan revival, prime minister Shehbaz Sharif had rejected an Oil and Gas Regulatory Authority’s (Ogra’s) summary for passing an increase in prices of petroleum products on to consumers. A little earlier, the IMF said that the government had “agreed that a prompt action is needed to reverse the unfunded subsidies which have slowed discussions for the 7th review.”
The finance minister is reported to be now preparing a plan to phase out the subsidies for POL products with least political consequences. Till such time, the IMF programme remains suspended as withdrawal of fuel subsidy is one of the prior actions for programme revival.
Simultaneously, the government was expecting to obtain a $7.4 billion financial assistance package from Saudi Arabia in the shape of cash deposits and oil on deferred payments, including rollover of the existing $4.2 billion facilities that are expiring by the end of this year. Saudi Arabia only agreed to roll over, for an additional one year, the agreement earlier made with the PTI government on $3 billion cash at 4% interest rate and supply of $ 1.2 billion oil on deferred payments at 3.8% rate.
The State Bank of Pakistan’s (SBP’s) policy rate continues at 12.25 percent and the discount rate is at 12.75. An additional 100 basis points increase in the policy rate in the upcoming review in May is expected. Kibor is over 14 percent.
The consequences of the said figures is an economic slowdown at a time when the government is running out of sources to fund the fiscal deficit which is at record level. The situation becomes more critical in the absence of an agreement with the IMF and limitation of expected funding from friendly countries and international lenders.
Whereas, the other critical issue is the rising trend of inflation which in this fiscal year (FY22) is likely to be around 11-12 percent while the number can cross the 15 percent mark in the next few months.
The current situation, which is characterized by political instability, confusion and reluctance in taking the bold and timely economic decisions, is severely affecting the local and foreign investor’s confidence - which in turn affects the revenue generation capacity of the government. Foreign investors are concerned at growing pending tax refunds which as of March 2022, amount to over Rs77 billion, including Rs43 billion income tax refunds.
A demand to this effect was made by Overseas Investors Chamber of Commerce and Industry (OICCI) on behalf of 51 foreign firms, whose tax refunds were yet to be released, in a letter written to the Federal Board of Revenue (FBR).
According to it, “We firmly believe that tax refunds should be an ongoing process so as to avoid liquidity issues of our members that continue to pay huge tax on their ongoing business activities.”
Ironically, while tax refunds of ones who are generating maximum revenue for the government and adhere to ethnical business and tax paying practices is held up, mega scams of issuing fraudulent tax refunds continues.
In a recent case the Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to form a high-powered inquiry committee to fix responsibility on tax officials involved in a mega-scam of issuing bogus tax refunds amounting to Rs 123.364 million for Tax Year 2007 to 2009 and 2011.
Prime Minister Shehbaz Sharif has constituted a 21-member Economic Advisory Council (EAC) to review and formulate economic policies in a holistic manner. The past government also constituted similar advisory councils comprising almost the same experts. What came out of it is little known. Problems are on the table. The time is now to act and act alone within a small time window.
The incumbent government, which is hamstrung by diversified coalition partners and mounting pressure by the opposition for elections, will not be able to meet the formidable task of taking the economy out of the woods. Political stability is a must. The incumbent government cannot do much on its own to stabilise the worsening situation. All stakeholders of the nation must put their act together to salvage the sinking economy.
(The writer is a former President, Overseas Investors Chamber of Commerce and Industry)
Copyright Business Recorder, 2022