Use development funds as ‘stimulus’ to revive growth, advises IMF

Updated November 02, 2019

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IMF proposes single tax base to help create an enabling business environment. — AFP/File
IMF proposes single tax base to help create an enabling business environment. — AFP/File

ISLAMABAD: The Intern­ational Monetary Fund (IMF) on Friday asked Pakistan’s federal and provincial authorities to introduce a single tax base and make full use of development funds as ‘stimulus’ to revive economic growth it estimated to be one of the lowest at 2.4pc for the current fiscal year.

An IMF team led by Mission Chief to Pakistan Ernesto Ramirez Rigo is in Pakistan for first quarterly review of the 39-month fund progrmmme. The mission held meetings with federal and provincial economic managers on Friday including finance ministers from Punjab, Khyber Pakhtunkhwa and Balochistan, special secretary finance from Sindh besides Finance Adviser Dr Abdul Hafeez Shaikh and Planning Minister Makhdum Khusro Bakhtyar.

Rigo “stressed upon a full use of the development budget to achieve the development goals,” said a statement issued by the Ministry of Finance.

Separately, Planning Minister Khusro Bakhtyar said he “thanked IMF for reinforcing need for higher public sector development spending in providing stimulus to the economic growth”.

Rigo also emphasised the need for “harmonisation in the tax system and creation of a single tax base as it directly impacted on the ease of doing business and went a long way in creating an enabling business environment and boosting confidence of the investors and businessmen.

Proposes single tax base to help create an enabling business environment

Dr Shaikh told the IMF that the federal and the provincial governments were in a continuous dialogue to improve coordination and create harmony on issues related to fiscal and budget management, multiplicity of tax rates and reconciliation of input adjustment.

The adviser said the harmonisation of taxation and other fiscal issues within the constitutional framework was a challenging process but a continuous dialogue and coordination between the centre and the provinces and between the provinces themselves had resulted in better budget and expenditure management.

On the other hand, he said that definitional issues as to what constituted a service and what rate of tax applied to it in different regions were also being resolved in a spirit of mutual understanding and accommodation.

The provincial ministers from Punjab, Khyber Pakhtunkhwa and Balochistan as well as officials from Sindh did not agree to an observation from the IMF chief that suggested higher tax collections showed the businesses were doing well.

Punjab Finance Minister Hashim Jawan Bakht responded that economy had in fact contracted and the improvement could be attributed to better fiscal management and greater efforts both at the federal and provincial level.

KP’s Finance Minister Taimur Saleem Jhagra believed that further improvements could be achieved if there was trust at various levels of the centre and the provinces and stakeholders do not hold back information and money. There should be enhanced coordination.

The provincial representatives also shared their experiences and briefed the IMF mission about various measures and strategies put in place in their respective provinces to achieve better fiscal and budget management.

A finance ministry statement said Rigo was impressed by what he described as good financial and fiscal management and maintenance of expenditure within the budget but called for full use of the development budget to achieve the development goals.

He said Pakistan had a continental size economy, much like the Western Europe where everybody had the same definition of the tax rate and services, and the same could be achieved in Pakistan through uniform tax rates and a single tax administration instead of two or three tax authorities in each province.

He appreciated the current level of understanding between the centre and provinces and hoped such efforts would continue to build consensus and bring about greater harmony.

Separately, the planning minister told the mission that the government was allocating additional resources for socio-economic uplift of deprived areas through regional equalisation programme and focus was being paid on enhancing productivity by investing more in knowledge economy, education, water resources and correcting transmission lags.

Bakhtyar said the government was under obligation under Water Policy to allocate 10pc of total resources under PSDP for water sector for enhancing storage capacity and enhanced attention was being given for projects nearing completion.

At the same time, he said the government was also trying to leverage private sector resources to complement development needs of the country.

Rigo expressed his optimism over Pakistan economy’s future prospects by highlighting early signs of recovery as more machinery was being imported which in itself reflected greater confidence in investment prospects in the country. He also highlighted the increase in exports in quantum terms, a statement said.

Published in Dawn, November 2nd, 2019