Pakistan cannot increase tariffs or taxes, IMF told: Shaukat Tarin

Published May 5, 2021
Finance Minister Shaukat Tarin said on Wednesday that Pakistan would seek space from the IMF on raising tariffs and taxes. — DawnNewsTV
Finance Minister Shaukat Tarin said on Wednesday that Pakistan would seek space from the IMF on raising tariffs and taxes. — DawnNewsTV

Finance Minister Shaukat Tarin said on Wednesday that the International Monetary Fund (IMF) had been informed that Pakistan didn't currently have the capacity to raise its tariffs or taxes under the IMF programme, adding that the World Bank and IMF had been sympathetic to the point of view.

Addressing his first press conference in Islamabad after assuming the charge as finance minister, Tarin said: "Pakistan has not yet come out of the IMF programme, we have discussed with them and told them that our revenues were increasing at 92 per cent but the third wave of Covid came and they decreased after that."

"At this time, we don't have the capacity to increase tariffs or [adopt] incremental taxes, our common man is completely fed up of this inflation," he said, adding that this had a cascading effect and inflation would increase once fuel charges were increased.

He added that this stance was conveyed and both the World Bank and the IMF had been very sympathetic to it. "We have to tell them that we won't come out of the IMF programme but give us some space and we will change the method. Tariff increase is not the only way to raise money."

He said they were concerned that Pakistan's circular debt was increasing and there "should be some brakes" and stability in it. Tareen added that the government would prove that through various measures, but it didn't mean that it would increase tariffs on the common person since Prime Minister Imran Khan was against it.

"We will apologise to them on this and they are sympathetic to us."

Addressing taxation, he said its ambit would be further increased through "innovative methods" and the tax-to-GDP ratio would increase every year by one to two per cent. Tarin added that sudden increases on the orders of the IMF, as had been done in 2019, would "not happen. This is the wrong way of doing it".

Instead, he said, gradual annual increases would be the better way to go and efforts would be made to convince the IMF about it.

"If people think we are trying to come out of the IMF programme, then no we will not. You get a stamp [of approval] from it because of which the world sees you are going towards stability, however, the targets they've given us at this time, we'll tell them that the third wave of Covid-19 has arrived and give us some space at this time."

The finance minister said that when the incumbent government came into power, it faced a lot of challenges, chief being the current account deficit. He said the government had to approach the IMF and the "environment was not the same when I had gone to the IMF in 2008 so the world was with us. Because of the fight on terror, they didn't put the conditions which should have been applied but they asked us what can we do."

He said it had been a "friendly environment" but the environment at the time of the current government was not "friendly" due to the surrounding political situation and and efforts of some countries which made the process difficult.

Tarin said the current IMF programme was difficult and set such conditions which also had a "political cost". "But I think the government, despite those strict conditions, followed it and went towards stability."

The finance minister had also previously said that the IMF would be convinced to relax conditions particularly those related to power tariff hike. Testifying before the National Assembly’s Standing Committee on Finance, Tarin had said the higher power tariff was leading to corruption and affecting economic growth. The conditions agreed to under the IMF programme were very harsh, he had said.

He had claimed that the government would take alternative measures to reduce circular debt instead of tariff increases. Similarly, he had said, the tax net would be expanded instead of increase in taxes to achieve revenue targets.

The finance minister had said that the IMF was being convinced to have a sympathetic view towards Pakistan after it had been hit by the third wave of coronavirus pandemic.

Philosophy of growth

The finance minister said that he and the prime minister shared the philosophy of moving out of the stabilisation phase and towards growth. "We have to grow this economy," he said, adding that it would be achieved through incentivising industry, agriculture and housing so "there is employment for the people and the industry grows".

He lamented that Pakistan had been among the top economies in Asia in the past — a time when it had actually carried out economic planning. Tarin added that 12 groups had now been formed under the Economic Advisory Council to conduct short, medium and long-term planning for various sectors.

"We have to make a comprehensive plan of those people and ministries who have to implement it so we can ensure their accountability," he said, adding that price stability was also an important aspect. "Our prices are very erratic and our inflation isn't coming down so we saw what was the reason for this."

He specifically pointed at the disparity in prices between the retail sector and what the farmers receive and said it would be seen how it could be reduced. "All of us want that inflation for the common man should be less, especially in items of everyday use."

The finance minister also lamented that "we don't have social security". He commended Special Assistant to Prime Minister on Social Protection and Poverty Alleviation Senator Dr Sania Nishtar's efforts on the Ehsaas Programme and mentioned the possibility of its expansion to healthcare, employment and skill development.

Tareen also addressed the issue of revenue collection and while praising the role of the Federal Board of Revenue, also said that there was people faced harassment due to which they didn't enter the tax net. "We will bring programmes in this [upcoming] budget which will reduce and eliminate obstacles so the common man who wants to enter the tax net does not face difficulty."

Terming the energy and power sector as a "very big gorilla", he said the capacity payments were increasing a lot. "This is a very big area we will have to look at," said Tarin. He also criticised Pakistan's performance in agriculture in the past decade and said it was "flat" and not enough money had been spent on it,

"We will have to spend money on agriculture [...] we will have to treat agriculture as a major industry for us because we have the most employment there."

Tarin also lamented that the industry and exports sector were not competitive and said, "we have to create a vehicle which can consolidate this industry and bring in FDI (foreign direct investment) in it."

He also said the China-Pakistan Economic Corridor would have to be used and the Chinese would be requested to set up special economic zones and bring their outsourced ventures to Pakistan. The finance minister also specifically pointed to the importance of information technology and said its exports could be easily increased from current values to many times more in the next two to three years.

"IT can be a game changer for us in the next five to 10 years."

The finance minister also mentioned other initiatives such as the Kamyab Kisan (farmer) Programme, similar to the Kamyab Jawan Programme. He said through these programmes "we have to bring prosperity for lower segments because of which poverty levels will decrease."

In response to a question about the National Accountability Bureau (NAB), the finance minister said that "we should stop digging and see where we stand. NAB should look at many things, they don't know what is happening and they should understand our environment." He added, however, that he wasn't giving a public statement but relaying his own experience.

He declined to comment more on the matter and said the prime minister and others were involved in it and there would be steps taken soon on it.

"It is important that we bring political stability here. It will be my effort to decrease the temperature and I will sit with these people whether it is PML-N or PPP or other political parties so we can create consensus on certain economic issues."

He also stressed that improvements were needed in the bureaucracy and that "we have to make the government the employer of choice."



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