ISLAMABAD: The International Monetary Fund (IMF) wants the centre and provinces to consider “rebalancing” the sharing of financial resources under the 7th National Finance Commission (NFC) award as well as parliamentary consensus on privatisation of Pakistan International Airlines.

Speaking to journalists here on Friday ahead of IMF’s scheduled talks with Pakistani authorities on the 10th review of its bailout package, the fund’s Resident Representative Tokhir Mirzoev said the foremost challenge faced by the country was the business climate and falling exports. He urged the government to immediately deliberate with the business community to address these challenges.

Mr Mirzoev said Pakistan’s outlook was positive but it was contingent on continuous progress on structural reforms. A meeting is scheduled to start on January 26 in Dubai that will review the country’s economic performance at end-December 2015 before the disbursement of the next IMF tranche of about $500 million under the programme that would conclude in August.

He said that exports had declined over the past two years which could have ‘serious implications’ on currency valuation as well as Pakistan’s foreign exchange reserves built over the period through robust remittances and savings in the oil import bill.

But, he added, the government was devising a strategy to improve the business climate. The ‘ease-of-doing business’ indicators may have improved a bit but the steps seemed to be inadequate, he said.

The declining export competitiveness was the most worrying aspect for economic growth momentum, said the official, adding that the current momentum was being generated from the China-Pakistan Economic Corridor, but exports were declining.

This meant that there were some fundamental and binding constraints that could be determined and addressed in consultation with stakeholders, Mr Mirzoev said.

The government should also take steps to diversify exports to increase foreign exchange earnings and protect foreign exchange reserves from any shock in case of an increase in oil prices, he advised.

The IMF official praised the authorities for making significant savings from low oil prices and retaining some profit by increasing the GST.

He added that Pakistan’s revenue had five buckets and only two of them – personal and corporate income tax and general sales tax on goods – were in the domain of the federal government. Both areas had shown sufficient progress, he said.

The remaining buckets - GST on services, tax on real estate and agriculture – were in the provincial domain where limited progress had been observed. Moreover, the previous NFC had tilted sufficient resources towards the provinces and there was general consensus that some “rebalancing” needed to be done.

He stressed the need for dialogue between the centre and provinces on how to achieve fiscal rebalance in terms of expenditure and responsibilities.

In reply to a question, he said the IMF could not force parties for rebalancing and can only assess the situation and advise. “It requires dialogue which should take place at the earliest”, he said. The IMF, according to Mr Mirzoev, was the federal government’s partner and not of the provinces and hence, “cannot engineer this dialogue”.

In response to another question, he said the IMF programme had brought about several reforms in Pakistan so far. “Reforms should not stop with the IMF programme (in August). Structural reforms should continue. Countries that made economic progress were those that continued with reforms after the IMF programmes were over”, he added.

He said that some countries had taken up the IMF programme for money, others for a second opinion on economy and yet others for coordination with lending partners. “We are ready to lend our support but it is for Pakistan to decide if it wants another IMF programme or not.”

He said that Pakistan must reach a consensus in the parliament on the privatisation programme, particularly those of Pakistan International Airlines, Pakistan Steel Mills and power distribution companies. “National consensus is needed on whether the country needs investment of the private sector in public sector enterprises or if it wants to finance them through tax payers’ money.”

In reply to a question on the tax amnesty scheme the government pushed through parliament on Thursday, he said the “IMF is not fond of such schemes and will be discussing with Pakistani officials during the review how many new tax payers were expected to be brought into the tax net through the programme.”

He added that the IMF might have some issues with its implementation, admitting however that “this scheme is different from previous ones” because it offered two options: either to become filers or pay tax on financial transactions.

Published in Dawn, January 23rd, 2015