Finance Minister Ishaq Dar. PHOTO: AFP
ISLAMABAD:
The head of the International Monetary Fund’s (IMF) mission in Pakistan claimed on Friday that the ruling Pakistan Muslim League-Nawaz “unilaterally decided” to reduce the budget deficit – in open contradiction with Finance Minister Ishaq Dar’s claim that the caretaker government, in conjunction with the Fund, had agreed to a Rs200 billion tax levy.
Speaking with The Express Tribune, IMF mission chief Jeffrey Franks said there had been dialogue about the possibility of measures to raise revenue. “In the end, in the absence of a programme with the IMF, the caretaker government chose not to implement any of the measures,” said Frank by telephone from Washington.
Franks said the IMF accepted the caretaker government’s decision, adding that the PML-N government took measures to reduce the gap between national income and expenditures.
In the last cabinet meeting, the finance minister had admitted that an estimated Rs200 billion in taxes that his government levied was one of the main reasons for skyrocketing inflation. But he blamed the caretaker government for the move, while providing a summary of revenue-increasing measures suggested by the PML-N government. Dar said that after former president Asif Ali Zardari did not approve the measures, the PML-N government was bound to honour the commitment made to the IMF.
Franks statement suggests that the government was trying to pass the buck to its predecessors, particularly as independent economists have criticised the government for levying indirect taxes in the budget for raising revenues instead of widening the tax net. They voiced fear that indirect taxes would fuel inflation – as can currently be witnessed. Analysts also doubt the credibility of Dar’s statement, arguing that if the caretaker government had finalised a decision, why would the PML-N government spend three weeks to finalise the programme?
The IMF chief also appeared dissatisfied with the performance of the Federal Board of Revenue (FBR). “There has been some progress in the annual growth in revenue collection but it is far from adequate and more needs to be done to improve collection and tax administration,” said Franks.
In six months, the FBR witnessed a 15% growth through the collection of Rs1.020 trillion in taxes — far below the required growth rate of 28% to hit the Rs2.475 trillion tax target.
Franks also maintained that the IMF did not lower the Rs2.475 trillion tax target. “We deliberately pitched the projected collection at Rs2.345 trillion but the government should aim at its original target,” he said. He maintained that improvements in the areas of taxation and energy was a multi-stage process. “It is unrealistic to expect progress in just six months, as it will take a few years to fully implement reforms,” he explained.
Franks said the IMF was neither soft nor hard on Pakistan. “There is a fine line between being too tough or not to being tough enough,” he said, adding that the programme required flexibility in order to take into account the country’s circumstances. He said the adjustments Pakistan is making have to be made with or without the IMF programme.
To a question regarding the relaxation of a target of building foreign currency reserves to $2 billion by State Bank of Pakistan for the second quarter of the fiscal year, Franks said the IMF had to adjust the target after the first review as some of initial projections were not met. He said in the upcoming second review meeting of the programme, the IMF will consider if there is a need to review any targets again.
Franks said there were no specific concerns about data manipulation, either of the fiscal deficit or economic growth. “We have no reason to doubt the data of Pakistan,” he stated. He said the IMF was offering technical assistance to improve the quality of data, adding that the quality of quarterly GDP numbers will gradually improve.
Published in The Express Tribune, January 11th, 2014.
Published: March 29, 2014
According to the IMF’s staff report, the State Bank of Pakistan holds over 2 million troy ounces of monetary gold, having $2.7 billion value at market rate. CREATIVE COMMONS
ISLAMABAD:
Pakistan has refused to sell gold worth $2.7 billion, citing national security reasons, as the International Monetary Fund (IMF) pushes Islamabad to convert the precious metal into cash to build foreign currency reserves, revealed the global lender’s report on Friday.
The report, prepared by IMF’s staff led by its Washington-based Mission Chief to Islamabad Jeffrey Franks, also spills the beans on the ‘$1.5 billion gift’ to Pakistan by ‘Saudi Arabia’ – the name Prime Minister Nawaz Sharif’s government has so far refused to officially share with parliament.
According to the report, the State Bank of Pakistan (SBP) holds over 2 million troy ounces of monetary gold, having $2.7 billion value at market rate. It is not counted in gross international reserves as it is not deemed to be liquid by the SBP, says the IMF.
The IMF and Pakistan authorities discussed what steps would be needed to make gold more liquid, the report adds. “However, the (Pakistani) authorities stressed that they have no plans to sell gold and preferred existing arrangements for gold holdings for national security reasons.”
The IMF is pushing Pakistan to sell gold holdings at a time when other countries are buying the commodity as a strategic reserve. The IMF had even sold its surplus gold to India a couple of years ago.
According to analysts, one reason behind the IMF’s insistence could be the country’s inability to build official foreign currency reserves despite being in the $6.7 billion IMF arrangement.
While the IMF hinted in its report that the SBP was not aggressive in building foreign currency reserves, it disclosed that Pakistan’s central bank continued its efforts to build reserves by purchasing dollars from the market.
The SBP purchased $575 million in the last few months till March 17, the report states. The SBP purchases may help stabilise the foreign currency reserves but is considered one of the reasons behind depreciation of the local currency against the US dollar. The rupee started appreciating only after the $1.5 billion grant from Saudi Arabia.
$1.5 billion gift
While the federal government remains reluctant to officially disclose the name of the country that ‘gifted’ Pakistan $1.5 billion despite persistent demand of the opposition, the IMF report identifies it as Saudi Arabia.
A “$750 million grant recently received from Saudi Arabia” will help the Pakistan government in reducing borrowings from the SBP for budget financing, said the IMF.
“Reserve accumulation was also aided by an additional inflow of $750 million from Saudi Arabia,” according to Memorandum of Economic and Financial Policies (MEFP), which is attached with the report and is jointly prepared by Pakistan and the IMF.
In a footnote to the MEFP, Pakistan told the IMF that it received an initial inflow of $750 million on February 19, indicating that it would receive more money.
Strong growth forecast
The IMF confirmed its recent forecast of 3.1 per cent growth this year, which was revised up from an earlier 2.8 per cent. “The overall economic situation in Pakistan is gradually improving,” said Jeffrey Franks.
“That 3.1 per cent may still be a bit on the conservative side, so we see indicators of growth that are relatively strong considering the fiscal adjustment that has taken place,” he told reporters on a conference call.
For the 2014-15 fiscal year, the IMF expected Pakistan’s growth to accelerate to around 3.7 per cent.
The IMF report said the growth was boosted by a stronger manufacturing industry thanks to an easing of Pakistan’s chronic electricity shortages, despite weaknesses in agriculture.
It also said that Prime Minister Nawaz Sharif’s government, despite its commitment to IMF-backed reforms, faced ‘strong’ political resistance to certain structural measures.
Published in The Express Tribune, March 29th, 2014.
