- Despite lender's insistence, govt will not increase rate of personal income tax, says finance minister
- Stresses that the biggest obstacle in way of programme revival was fuel subsidy
Finance Minister Miftah Ismail said on Saturday that the International Monetary Fund (IMF) has called for a "tough budget" for the coming fiscal year, but Islamabad is confident that the Washington-based lender would revive the bailout programme for Pakistan.
In his remarks during the 'National Economy Dialogue – The Way Forward for Pakistan' organised by Corporate Pakistan Group and Nutshell Conferences, Ismail, who led the Pakistan delegation in its talks with the international lender, said that the Fund has asked for a “very tough” budget. The finance minister said IMF is calling for a reduction in the primary budget deficit.
“The government will not be able to achieve this, so we are in negotiations with the Fund," said Ismail. "However, those are not the big hurdles — the biggest obstacle was the petrol subsidy, which we were able to remove so I think everything else would be easier."
Battling a widening current account deficit amid a hike in the import bill, and depleting foreign exchange reserves, Pakistan has been desperately seeking revival of the stalled $6 billion Extended Fund Facility (EFF). Experts have said that its resumption is crucial, as a green signal from the international lender paves way for further funding from other creditors.
At conclusion of its recent talks in Doha, the IMF said that reversal of energy subsidies is crucial for programme-revival.
Speaking at the session, Ismail expressed optimism that Pakistan would reach an agreement with the IMF in June.
“This will bring stability to the currency and stock markets. The stability in rupee will control inflation as well,” he said, adding that the government’s latest measure of hiking petroleum product rates would increase inflation, but it was needed.
Talking about the upcoming budget, the finance minister “guaranteed” that, despite IMF’s insistence, the government would not increase rate of personal income tax, and remains in talks with the Federal Board of Revenue (FBR) on reducing the rate.
Elaborating on the current economic indicators, the minister shared that Pakistan is passing through a “tough phase”.
“The day I became the finance minister, the Finance Division projected a deficit of Rs3,600 billion, which is the highest ever.
“Adding the provincial deficit, it cumulatively adds to Rs5,100 billion, which comprises of Rs3,700-3,800 billion in debt servicing and the remaining Rs1,300 billion as primary deficit. This is in contrast to the agreement made with the IMF during the sixth review, under which the primary deficit was estimated to be around Rs25 billion,” he said.
Ismail added that Pakistan has to make debt payments of around $21 billion next year, “which will add up to $31 billion if the $10 billion in current account (CA) deficit is included”.
“Furthermore, if we want to increase our foreign exchange reserves by $5 billion, which currently sit at around $10 billion, total funding requirement rises to $36-37 billion,” said the minister, adding that in order to attract the funding it is important for the country to revive the IMF programme.
Ismail informed that the value of Pakistani bonds has dropped to 65 cents, making it unfeasible to go to the commercial market or issue euro bonds.
“Thus, the only option left is to approach multilateral institutions, but in order to take loans from such institutions, it is important to get the IMF nod,” he said.
Talking about the IMF’s prior condition related to the removal of subsidy on petroleum products, Ismail said that the government was bearing a loss to the tune of Rs120-140 billion a month.
Earlier, Ismail at a hurriedly called press conference on Thursday announced to increase petroleum products’ prices by Rs30 per litre.
On Friday, Prime Minister Shehbaz Sharif announced a Rs28-billion relief package, under which Rs2,000 per family would be given to 14 million families, whose household earning is less than Rs40,000 a month.
Talking about the relief package, Ismail said, “Rs2,000 may not sound much, but it is about 5% of the household income, which is the same an average Pakistani spends on transport”.
Ismail said the country needs an “agricultural revolution” as the yield of every crop is very low.
“I think that Pakistan's first line of defence in terms of economy is agriculture, and we need to improve its productivity,” he added.