EDITORIAL: The Secretary Finance put a positive spin on the final day of discussions/negotiations with the International Monetary Fund (IMF) on the ninth quarterly review and alerted the media that Finance Minister Ishaq Dar would address the press as soon as the mission releases a supportive statement (uploaded on the Fund website the next day on the 10 February) and the Memorandum of Economic and Financial Policies (MEFP), a critical document that lays out in detail specific time-bound actions/structural reforms that the authorities have pledged to implement (received early morning of 10th February, prompting finance minister Ishaq Dar to hold a press conference at 9:30am).
Dar indicated that the government would review the document over the weekend though one may assume that the Fund is unlikely to deviate from its stipulated position in the detailed MEFP but the two sides agreed that a virtual meeting will be held on Monday.
Sceptics would no doubt point out that in spite of a supportive statement by the Fund and the positive spin by Dar, the fact that the Fund refrained from announcing the success of the ninth review cannot be attributed entirely to procedural delays on the part of the Fund but to (i) the implementation of key prior conditions by the government; and (ii) reaffirmation of pledges – roll over and additional loans - by friendly countries.
Dar in his press briefing said that he would share some salient points with the media. First, either through an ordinance or an act of parliament, additional taxes to the tune of 170 billion rupees would be levied.
While this amount falls far short of what was being forecast by economists — from 300 to as high as 850 billion rupees — yet former finance minister Hafiz Pasha maintains that this revenue must be projected over a year as there would be no rollback of these taxes, implying thereby that a total of a little over 500 billion rupees every year is the Fund’s target.
Such a projection assumes that the government would have to go on an another Fund programme as soon as this one is completed end-June because the Fund umbrella would be vital for debt rescheduling which is necessary if the country is to survive the ongoing economic impasse.
Business Recorder would like to emphasise that the veracity of the figure cited by Dar would depend on whether the government team can convince the Fund of the veracity of its data. Reports indicate that with respect to the primary deficit the Fund team reportedly insisted that it is 0.9 percent of GDP instead of the government claim of half that, or 0.45 percent of GDP. When asked for data, the minister brushed it aside, saying that he would provide details at a later date.
Second, arrest the rise in circular debt in the power and gas sectors. It is estimated that meeting this requirement would require raising tariffs by 3.39 rupees per unit till the end of this year and for next fiscal year (July onwards) the raise would be about 10 rupees per unit — or a significant amount.
The gas sector has calculated that rates will have to be raised by 98 rupees per mmbtu for SNGPL and 109.91 rupees per mmbtu for SSGCL if further flow into circular debt is to be eliminated for the rest of the current year.
Dar also confirmed yielding to the Fund’s demand that all unfunded subsidies would end. However, in conformity with the Fund’s acceptance of targeted subsidies for the poor and the vulnerable sections, funding for the Benazir Income Support Programme will be raised by 40 billion rupees.
Petroleum levy on petrol has already been maxed at 50 rupees per litre since November and would also be maxed on High Speed Diesel, which would require an additional levy of 10 rupees per litre. No sales tax on petroleum products will be imposed in the legislation for additional taxes, according to the finance minister.
It is not clear yet whether exemptions in vogue would be reversed and, more importantly, there would be increased reliance on direct taxes instead of indirect levies to meet the budgeted revenue target. It is also unclear whether the Fund team agreed to slashing Public Sector Development Programme as the sole means to contain government expenditure, with negative implications on the country’s growth as well as capacity to generate tax revenue and not slash current expenditure.
It is disturbing that funding for an ever-rising army of special assistants to the prime minister continues and in this context Shehbaz Sharif’s decision to induct yet another batch of SAPMs (special assistants to the prime minister) while the mission was still in the country no doubt sent a very wrong signal.
Notwithstanding the sharing of select information with the media, the actual conditions agreed with the Fund would only be known once the MEFP is uploaded on the Fund’s website and for that the country has to wait as it will be uploaded only after the ninth review is declared a success and the disbursement of the next tranche imminent.
Copyright Business Recorder, 2023