ISLAMABAD: The International Monetary Fund (IMF) would be seeking from Pakistani authorities next week an in-depth account of incentives packages for agriculture and textile sector besides focusing on taxation and energy to determine successful conclusion of 9th quarterly review.
“We are collecting information about these packages and will be discussing (them) in detail in the next review mission,” said IMF Resident Representative in Islamabad Tokhir Mirzoev before leaving for Dubai talks taking place from Oct 26 to Nov 4.
He told journalists that taxation and energy would remain the centre of discussions because progress on structural reforms in these two areas were crucial to build on stability achieved so far and creating jobs, improving business climate and putting economy on a sustainable growth path.
Based on data in these areas, “the mission would evaluate if end-year targets could be achieved”, said Mr Mirzoev while responding to questions on expenditure on kissan and textile packages coupled with shortfalls in revenue collection and cuts in development expenditures.
The IMF official also responded in the affirmative when asked if the government had consulted the IMF for introducing “single stage sales tax regime” to replace IMF’s preferred mode of value-added tax (VAT) based general sales tax system for broadening the tax base. “We are formulating our position” on the single stage tax system, he said.
The government announced a Rs341 billion incentives package for the agriculture sector recently and has been in talks with the textile industry for quite some time over a bailout package.
Mainly because of shortfalls in tax collection in the first quarter (July-September) of this fiscal year, the IMF has already scaled down its projections for development expenditure by around Rs378bn — around Rs64bn cut in federal and over Rs314bn cumulative shortfall in provincial development expenditure against budgetary announcements.
Informed sources said the IMF would soon be fielding technical assistance mission to examine the proposal for single-stage sales tax system even though the fund has been recommending VAT mode sales tax system in most of the countries.
The IMF believed the Pakistan had achieved a reasonable stability in fiscal and monetary indicators but it would be “unfortunate” if it failed to take its benefit pushing through structural reforms, hampering job creation, investment and economic growth.
Also, it understood energy challenge was affecting all sectors of economy because of inability of the distribution companies to recover their bills and could not pay their suppliers including fuel providers and private power producers.
Resultantly, the power sector was facing working capital shortfalls, leading to downward spiral migrating across the sector and failing to invest in loss reduction programmes and theft control despite repeated tariff increases and imposition of various surcharges on honest, paying consumers.
The IMF has put all its bets on Pakistan’s power sector to full implementation of a circular debt capping plan put together with assistance of the World Bank, the Asian Development Bank and the IMF with a three-pronged strategy after its success in Turkey over a period of almost 10 years.
But Mr Mirzoev warned that all aspects of the circular debt capping plan would need to be implemented simultaneously in tandem to make it work, otherwise the sector would continue to make losses. These actions were previously applied one after the other in Pakistan but failed because these were not pursued simultaneously.
The plan envisaged continuously working to improve the performance of distribution companies, somehow bridge the gap between revenues and expenditures through imposition of financing surcharges, notwithstanding its additional cost to honest consumers, and ultimately privatisation of discos through a multi-year tariff so that private investors become willing to invest in the power sector.
The IMF believed the government spending plans and changing priorities should fit within the overall fiscal framework to ensure debt sustainability and fiscal deficit limits. Finance Secretary Dr Waqar Masood and State Bank Governor Ashraf Wathra would lead staff-level discussions, starting Oct 26, with the IMF mission in Dubai to be joined at the later stage by Finance Minister Ishaq Dar for policy-level decision-making.
As of last week of September, Pakistan has completed eight reviews of the 36-month $6.64bn extended fund facility (EFF) programme signed with IMF in September 2013 with total disbursements of about $4.54bn. A total of four more quarterly reviews and around $1.6bn disbursements would complete the programme in August 2016 before the two sides consider a follow-up programme.
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