ISLAMABAD: Finance Minister Ishaq Dar will join talks with the International Monetary Fund (IMF) in Dubai on Tuesday to resolve policy level issues for disbursement of over $500 million worth of next instalment of the $6.2 billion programme.

A government team, led by Finance Secretary Dr Waqar Masood Khan, is holding talks with the IMF mission, led by Harald Finger, for almost a week on 8th review of the extended fund facility (EFF) contracted in September 2013.

The talks have attained significance in view of slippages on two major performance criteria on privatisation programme and fiscal deficit for just concluded fiscal year 2014-15. Also, the IMF bailout package has reached a stage where initial economic stabilisation has to give way to longstanding structural reforms.

Dar’s involvement in the talks would be required to resolve some of the critical issues, like new timeline for privatisation of state-owned entities and increase in natural gas price for end-consumers. Islamabad has already received about $4.05bn, out of the $6.2bn programme that has to be concluded in 36 months ending September 2016.

Pakistan is seeking two waivers from the IMF board, along with conversion of quarterly performance reviews into biannual assessments to implement structural reforms, mostly in the energy sector that has been a major source of budgetary drain and unrest among the people.

But the bigger challenge has recently emerged because of strong resistance from traders against documentation drive introduced in the budget 2015-16 through extension of withholding tax regime to bank transactions over Rs50,000 per day.

This was one of the major revenue measures the government and IMF have been finalising for over six months to gradually increase tax-to-GDP ratio beyond 15pc by 2018.

Dar will have to convince the IMF mission to take additional revenue measures to make up for the revenue loss in case of failure of collection of withholding tax on bank transactions, apart from privatisation of state-owned entities, particularly those in the energy sector, Pakistan Steel and PIA that have been getting delayed repeatedly.

Going forward, the challenges still remain over SBP independence law while problems have emerged in the clearance of amendments to Anti-Money Laundering Act 2010 that among other things sought to bring serious tax crimes, tax-evasion and taxation offences into the ambit of money-laundering. The Senate standing committee on finance and revenue has put its foot down to allow such a move, which it feared could be massively misused.

This was despite the SBP warnings that the government has to criminalise serious fiscal offenses in the money-laundering law to comply with new standards of Financial Action Task Force (FATF), otherwise, it would be downgraded again to the grey list from which it was excluded after great efforts early this year after Islamabad introduced measures, including combating financing for terrorism law.

The Senate committee has deferred the ‘The Anti-Money Laundering (Amendment) Bill, 2014 for at least two weeks.

The law was required to use antimony laundering tools to combat tax-evasion and facilitate detection of potential cases of abuse of the investment incentive scheme to launder criminal proceeds.

Published in Dawn, August 4th, 2015

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