• Supplementary budget to be introduced
• Fiscal adjustment requires cut in uplift funds, increase in tax target, Rs4 per litre monthly hike in petroleum levy
• Tarin says govt to ensure parliamentary approval to grant SBP autonomy
• IMF wants audit of Covid funds, names of contractors
ISLAMABAD: The government on Monday committed to introducing a supplementary budget as part of an agreement with the International Monetary Fund (IMF) for a net fiscal adjustment of almost Rs550 billion during the remaining part of the current fiscal year through a 22 per cent cut in development funds, about Rs300bn increase in tax target and a Rs4 per litre monthly hike in petroleum levy on major petroleum products.
Making an upfront announcement about ‘five prior actions’ to secure approval of the IMF board for disbursement of about $1.06bn and revival of the Fund programme in January, Adviser to the Prime Minister on Finance and Revenue Shaukat Tarin said the government would also ensure “approval” of parliament to grant autonomy on matters of monetary policy, exchange rate and recruitments to the State Bank of Pakistan (SBP) that would remain answerable to parliament as it is now.
Speaking at a joint news conference with Energy Minister Hammad Azhar, Mr Tarin said the government would also get completed the post-facto audit of Covid-related expenditures and make public the beneficial owners of suppliers of vaccines and related procurements as part of the IMF agreement.
As such, five prior actions he listed include about Rs350bn worth of general sales tax exemptions through supplementary finance bill, Rs4 per litre increase in petroleum levy every month, autonomy to the SBP, audit of Covid-19 funds and declaration of their beneficial owners and Rs200bn reduction in the Public Sector Development Programme to Rs700bn. About Rs50bn cut has also been imposed on grants.
The revenue target has now been set at Rs6.1 trillion instead of Rs5.8tr in the original budget for 2021-22, Mr Tarin said, adding that the Federal Board of Revenue had already collected Rs225bn higher than the target in the first four months of the current fiscal year. The IMF was, however, unimpressed by the revenue collection and wanted implementation of policy actions to remove distortions like different GST rates for various sectors, he added.
Earlier in the morning, the IMF said its staff and the Pakistani authorities had “reached a staff-level agreement on policies and reforms needed to complete the sixth review” under the $6bn Extended Fund Facility (EFF). “The agreement is subject to approval by the Executive Board, following the implementation of prior actions, notably on fiscal and institutional reforms,” it added.
This will enable disbursement of $1.059bn, bringing total disbursements under the EFF to about $3.027bn.
An official said the legislative part of the IMF deal — SBP amendment bill and supplementary finance bill for withdrawal of tax exemptions — would be introduced in parliament next week.
Shaukat Tarin said the IMF board meeting would be called after Xmas holidays, most probably on January 12, to approve the agreement and the authorities would have the time until then to complete prior actions and ensure approval of the SBP amendment law by parliament.
He said the government would increase the rate of petroleum levy to Rs30 per litre through monthly increase of Rs4 to secure Rs356bn against a budgeted target of Rs610bn which was no more achievable.
Without directly naming former finance adviser Dr Hafeez Shaikh and incumbent SBP Governor Dr Baqir Reza, Mr Tarin said the IMF talks had prolonged because “we started the journey from where it was left in March-April with a commitment to withdraw Rs700bn tax exemptions, Rs4.95 per unit increase in electricity tariff and autonomy to the SBP against the constitutional previsions”.
“Let bygone be bygone, we have tackled whatever was wrong,” he said while responding to a question about accountability for such tough conditions as some of them were against the Constitution.
Mr Tarin said he remained steadfast against increasing taxes and energy tariff like a pyramid because that would have made the industry uncompetitive and affected the common man. He said he also insisted on ‘rationalising’ the SBP law in a manner that it was not seen an outside institution. “The IMF team was in a fix because we had made commitments and got $500 million and it was difficult for them to go back to the IMF board to justify why commitments were made when these were against the Constitution.”
The adviser said the team of officials he led was “not experienced” as some people described them unlike ‘experienced teams’ earlier, but they worked hard and “succeeded in major relaxations through give and take”. He said he was able to protect agriculture, tractors, food items, pesticides from sales tax, besides increase in tax rates and slabs for income tax and tax on provident fund. “Instead of Rs700bn worth of fiscal adjustment, we were able to save almost half and brought it down to Rs350bn,” he said.
Mr Tarin said he fully supported the SBP independence and its accountability as was for judges and other similar institutions. The central bank should not look like an alien institution and the applicability of accountability through the National Accountability Bureau or the Federal Investigation Agency would be like on it was the prime minister, parliamentarians and judges.
Additionally, there would be no monetary and fiscal policy board where the finance secretary used to have a say, but this has now to be replaced with a liaison between the finance minister and the SBP governor.
Responding to a question, Mr Tarin said the government would appoint the SBP governor and board of directors who would be completely free in monetary policy decisions, exchange rate adjustments and price determination. The governor and the board would have the powers to appoint deputy governors and the finance ministry would have no role in approving foreign visits of deputy governors and other senior officials.
Mr Tarin said the economic growth exceeded the government’s expectations in the first four months of the current fiscal year owing to expansionary fiscal and monetary policies and both the central bank and the government would now tighten them up as the economy had started overheating and such a growth rate was unsustainable. The SBP, he said, had already started mopping up excess money in the market through cash margins and monetary policy that would also slow down inflation.
Energy Minister Hammad Azhar said the base power tariff would not be increased for the time being and seasonal winter tariff and industrial support tariff of Rs12.96 for domestic, commercial and industrial consumers would remain protected.
The IMF appreciated the government for policy actions during Covid-19 period and as required under the Fund programme, but warned that external pressures had started emerging and needed to be addressed.
These include widening of the current account deficit and depreciation pressures on the exchange rate — mainly reflecting the compound effects of the stronger economic activity, an expansionary macroeconomic policy mix, and higher international commodity prices. In response, the authorities have started adjusting policies, including by gradually unwinding Covid-related stimulus measures.
Published in Dawn, November 23rd, 2021