While emphasising the need for adopting good taxation principles with sometime increase in the tax-base and sometime increase in rates, the International Monetary Fund (IMF) Monday, stated that it was working closely with the Pakistani authorities on preparing budget for the next fiscal year.
This was stated by Teresa Daban Sanchez, resident representative of the IMF in Pakistan, while speaking at an online policy dialogue, "IMF support to Pakistan under RFI, Existing Extended Fund Facility (EFF) programme and Debt Rescheduling" organized by the Sustainable Development Policy Institute (SDPI), here on Monday.
She said that the Covic-19 had changed the near-term outlook for Pakistan dramatically and new targets, projections and scenario would be evaluated under the EFF, which was intact, once the uncertainty was over.
"Pakistan needs to move the way with taxation, in line with good taxation principles and some times it requires increasing the base, and some time increasing the rates," Teresa said.
"As for I understand that prices in certain areas vehicles, beverages and petroleum products are not in line with other countries in the region, so in this context, we advised Pakistan to move by adopting good taxation principles, which is better not only for collecting more but also providing right signal about the cost of the products," added the IMF official.
She stated that taxation on tobacco in Pakistan was very low and it needed to be more taxed, not only for more collection but also for health reasons.
The IMF has no involvement over the decision on petroleum prices in Pakistan. If the government does not reduce the petroleum levy then it is its prerogative, she added.
Teresa said that budget was very important piece of legislation they needed to put together, in this new environment.
"We will work very closely with the authorities, advising on how to put a good budget," she added.
Replying to a question, Teresa said that everything had changed globally and in Pakistan as well.
"We have to calibrate everything but how it would be calibrated, I can't answer this question, as we have to sit down together to make new targets, projections and scenario evaluated," she added.
"The IMF is working closely with the authorities in Pakistan, and the next review mission may take place virtually. As the medium-term economic outlook is changing, we have to recalibrate everything from targets to trajectories. However, we need to continue working on the EFF as a framework as the programme provides continuity along with a healthy and sustainable trajectory from an economic point of view. It is encouraging that the GoP is committed to fiscal consolidation and reforms once the things get normal," she added.
Replying to a question, Teresa said that hot money was not part of the programme, but Pakistan succeeded in attracting, and now like other emerging markets, people were more risk averse.
She said that Pakistan could repay its loans from China, while remaining in the programme, as there was no bar in the programme.
Pakistan has not requested the IMF to defer its loan payments as no formal request has been received in this regard, she added.
Teresa said that the State Bank of Pakistan (SBP) act needed some changes to make it in line with the best international practices including for modern monetary policy and there were various ways in complying with best international practices.
The IMF experts are providing technical assistance to Pakistan in this regard, she added.
While commenting on the overall impact of Covid-19 on Pakistan's economy, Teresa said that there would be a significant cut in imports from Pakistan from various countries, the remittances would get reduced, tax collection would reduce considerably and the growth rate might get reduced to -1.5 percent.
"It is in this context, funds under the RFI arrangement would help Pakistan to bridge the gap in immediate financing needs. [Going forward, in post COVID-19 times], the IMF is working to make Pakistan as competitive and open as possible by making it more export oriented and an attractive destination for investment," she added.
The inflation rate is expected to remain at 11.3 percent this fiscal year. Pakistan's expenditure may increase by up to 1.2 percent, whereas, the country's tax receipts are projected to decline massively.
Everything is changing including prices, the oil prices are going down. It is credit for countries importing for energy, she said, adding that the demand supply also affects prices. Inflation is not only some numeric but also depends on expectations.
Commenting on opening up of the construction sector, she said that the IMF supports opening of labour-intensive sector where daily wagers may be absorbed.
However, Teresa expressed her hope that amnesty announced for investment in construction sector was temporary in nature, and would be withdrawn once situation became normal. "The IMF recommends that Pakistan as well as other countries recalibrate their policy actions as we move on. Therefore, the regulatory measures taken are temporary and regulatory relaxation might not be necessary in the future as it can create problems," she added.
Teresa said that the IMF was quite happy the way Pakistan was implementing various policies to achieve fiscal consolidation and macroeconomic stability and would continue to provide its support to the country to face the socio-economic challenges posed by the Covid-19.
She shed light on the IMF toolkit to fight the Covid-19 shock that included the RFI, which Pakistan would be utilising.
Dr Abid Qaiyum Suleri, executive director, SDPI, while highlighting Pakistan's recent engagements with the IMF, said that the Covid-19 had brought socio-economic uncertainties with a lengthy period of emergency response that would result in global recession.
This "new normal", according to the UN would be accompanied or followed by a severe food crisis.
In these circumstances, multilateral lenders such as the IMF would have to redefine their role as a socio-economic saviour to ensure "stability" of the "stability" that the IMF talks about.
"Among all deficits that Pakistan is facing today, trust deficit between people and the IMF, may also lead to trust deficit between people and the government, which Pakistan cannot afford during these testing times. The SDPI is continuously playing a positive role to bridge this deficit by bringing all stakeholders together for a candid discussion leading to greater transparency," added Dr Suleri.