IMF team coming to negotiate three-year bailout package

Updated April 27, 2019

Email

Technical level talks to begin from 29th.
Technical level talks to begin from 29th.

ISLAMABAD: A staff mission of the International Monetary Fund (IMF) would be visiting Pakistan on Monday (April 29) for negotiations on a three-year bailout package for economic reforms including the introduction of a single Value Added Tax (VAT) regime.

The announcement came following a meeting between Prime Minister Imran Khan and IMF Managing Director Ms Christine Lagarde in Beijing on Friday on the sidelines of the Belt and Road Forum.

“The IMF team will visit Pakistan starting April 29 to continue technical discussions for an IMF supported programme,” said Finance Minister’s spokesman Dr Khaqan Najeeb hours after the Beijing meeting. He said the Pakistan side for negotiations with the IMF will be led by Dr Abdul Hafeez Shaikh, Adviser to PM on Finance.

Earlier in the day, IMF’s Country Representative in Islamabad Teresa Daban Sánchez had told Dawn that the two sides were “still working out the details jointly with the authorities …. because of logistics and security considerations”.

Technical level talks to begin from 29th

Dr Khaqan said extensive preparation for data and macroeconomic framework finalisation and structural reforms had been ongoing among all key stakeholders including State Bank of Pakistan, Power and Gas Division, Privatisation Com­mission, Federal Board of Revenue and Benazir Income Support Programme among others for sharing with the IMF.

The successful conclusion of the talks would translate into a Federal Budget 2019-20 envisaging at least additional resource mobilisation of close to Rs500bn or around 1.2pc of GDP under a three-year fiscal adjustment and stabilisation programme.

The talks are taking place at a time the IMF had early this month forecast Pakistan’s fiscal deficit continuously elevated at close to 8pc and deteriorating debt-to-GDP ratio to reach 86pc over the next five years.

Pakistan authorities on the other hand have finalised the government’s strategy to deliver on Medium-Term Economic Framework 2019-23 (MTEF) targets to be finalised by the IMF.

The two sides have been engaged since August last year but talks were suspended in November when they could not reach agreement on economic adjustment plan as the IMF wanted upfront steep policy actions to reduce fiscal deficit through higher taxes and increase in gas and electricity prices and allow a market based exchange rate.

The government was, however, reluctant to take severe economic decisions of political nature at the earliest even though it increased electricity and gas prices and devalued currency significantly and wanted to stagger the burden on the people in the coming budget.

According to data finalised under the MTEF, the authorities have made up mind for an additional revenue effort matching about 2.6pc of GDP over a period of three years. The federal taxes are committed to increase by a total of 2.3pc (about Rs1.08tr) during three-year reform process under the IMF programme, starting with 1.1pc of GDP in upcoming fiscal year 2020.

This will be followed by 0.9pc of GDP additional revenue generation in FY21 and then 0.3pc in FY22. The provincial taxes are committed to go up 0.1pc of GDP every year to achieve 1.6pc tax to GDP ratio in FY22 from current year’s 1.3pc tax to GDP ratio.

Broadly, the tax measures expected to deliver the targets include “drastic reduction in tax expenditures by removing exemptions and excessive tax credits from incomes tax, sales tax and federal excise duty law and moving to a single sales tax (VAT) regime by doing away with special procedures and reduced rate taxation,” according official papers seen by Dawn.

The MTEF aims to address ‘three chronic deficits’ — fiscal deficit, current account deficit and the savings and investment gap. Named a Roadmap For Stability, Growth and Productive Employment, the government had announced recently that all numbers would be put to the MTEF on reaching an agreement to enter into an IMF programme. “We will share all the numbers and targets (of MTEF) once the staff level agreement is signed” with the IMF, former finance minister Asad Umar had announced.

Published in Dawn, April 27th, 2019