Govt’s resolve to implement reforms could mitigate economic risks: IMF

Published December 25, 2019
An official of the International Monetary Fund says that although inflation has started to stabilise, high food prices remain a major concern. — AP/File
An official of the International Monetary Fund says that although inflation has started to stabilise, high food prices remain a major concern. — AP/File

ISLAMABAD: Slow economic growth, failure to get out of the grey-list are some of the major risks faced by the country in its stabilisation programme under the $6 billion Extended Fund Facility (EFF), said the International Monetary Fund (IMF) on Tuesday.

The risks were highlighted by IMF Resident Representative Teresa Daban Sanchez, while clarifying the confusions around the first review of Pakistan’s economic performance under the EFF.

She was speaking at a session organised by the Sustainable Development Policy Institute.

At the outset, Sanchez said that Pakistan’s overall macro-economic performance remained satisfactory while revenue collections increased substantially, and there is improvement in the trade deficit and net foreign assets as well.

She went on to say that although inflation has started to stabilise, high food prices continue to remain a major concern. Owing to stabilisation policies, the government, she said public debt, although at a high level, is sustainable.

While highlighting risks to the programme sustainability, Sanchez said that slower growth could undermine fiscal consolidation strategy and opposition to institutional reforms, which may result in stagnant economic growth and hamper the pass on the benefit from reforms to the population.

The resident representative said failure to get out of the Financial Action Task Force grey-list could have implications on capital inflows to the country. “Owing to lack of a majority by the ruling party in the upper house, provinces may under deliver on their surplus commitments,” she added.

“The authorities’ steadfast commitment to the programme and decisive policy and reform implementation could help mitigate these risks,” she said while adding that close monitoring, with quarterly reviews, which allow for adjustment and improvements coupled with strong support by the international community, in the form of financial assurances and continue calibration and potential scaling up of social spending can help tackle the risks and faster recovery.

Sanchez said that as per the Memorandum of Economic and Financial Policies (MEFP), government is committed to strengthen tax administration and advancing tax policy by eliminating exemptions by FY2021.

She said that a joint working group on harmonisation of general sales tax will have to be constituted by March 2020. Moreover, under the MEFP, the government will improve governance of state-owned enterprises (SOEs) through privatisation of two LNG plants by end FY2020.

Under the agreement, the government will also have to publish audits of the Pakistan International Airlines and Pakistan Steel Mill by December coupled with new SOEs’ legal framework and triage, both by end of September 2020.

Regarding poverty reduction and social protection actions as envisaged in the MEFP, the authorities are committed to higher spending by expanding Rs180 billion allocations for the BISP and better targeting by updating the National Socio-Economic Registry (NSER).

While responding to a question, Sanchez clarified that the IMF does not dictate economic policies of the government; instead it provides technical support to the government in order to take right decisions. She said the fund is not asking for any increase in utility tariffs but to adjust the cost of generation with the tariff so that power sector losses could be avoided.

She said there was a successful transition towards a market-based exchange rate regime by the government which helped increase foreign exchange reserves. The government was also successful in controlling expenditures with the help of new public finance management law and avoid borrowing from the central bank, she added.

However, economic activity was softening as the economy adjusts to a new stabilisation policies, she added.

On the revenue side, she said the reduction in revenue collection targets will be appraised in the next quarterly reviews of the programme.

The IMF reduced the FBR target to Rs5.23 trillion from Rs5.55tr mainly because of reduction in imports. The FBR collects around 40 per cent of total revenue at import stage.

Published in Dawn, December 25th, 2019

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