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Aurangzeb sets sights on stability with IMF deal
• Insists economy moving in right direction, calls for structural reforms
• Pledges no retreat on taxes, urges wholesalers and retailers to pay their share
• PM says govt fulfilling IMF conditions to secure loan programme
ISLAMABAD: Finance Minister Muhammad Aurangzeb asserted on Tuesday that Pakistan was heading in the right direction towards achieving macroeconomic stability and continued to stress the importance of securing external financing necessary to secure IMF’s approval for a $7 billion bailout package, with the support of provincial governments.
In a recorded address broadcast on national television, Mr Aurangzeb said international institutions in such programmes looked at the sovereign, which he said comprises the federation and the provinces, for critical reforms to deliver — apparently a veiled warning to provincial governments against populist measures like energy subsidies.
“We will move forward with their consultation and support to make this (IMF) programme successful and the last one for Pakistan. For this, we need to stand on our feet and deliver on structural reforms,” the minister said while appreciating the positive role played by the chief ministers and the provincial governments in securing a staff-level agreement with IMF on July 12 this year.
The government’s efforts for getting the IMF board’s approval have been ongoing for the past six weeks, with meetings yet to be confirmed by the Washington-based lender pending confirmation of external financing inflows, including $12bn worth of bilateral rollovers from Saudi Arabia, China and UAE, besides at least $2bn in commercial loans.
The Fund has reportedly expressed displeasure over Punjab’s two-month electricity subsidy for consumers using 201 to 500 units monthly and the proposed rooftop solarisation in both Sindh and Punjab instead of focusing on reforms to ensure loss reduction, better recoveries and cost-cutting measures. Besides maintaining fiscal prudence, the four provinces are required to deliver at least Rs1.2 trillion cash surplus to the Centre under the IMF programme to meet fiscal deficit and primary account targets.
Mr Aurangzeb said he was excited to report a few positive economic developments achieved over the past six months, yielding real results in macroeconomic stability. He said inflation had dropped from a 38pc peak to single digits and foreign exchange reserves had improved beyond $9bn to provide two months of import cover. Also, twin deficits, particularly the current account deficit, have declined despite the clearance of around two years of backlog in import control, letters of credit and dividend and profit repatriations.
The finance minister, who had been uneasy over the State Bank of Pakistan’s sluggish stance on the policy rate cut, said inflation at 9.6pc in August this year was down from 23.7pc in the same month last year and required the policy rate to gradually come down as well to benefit the industrial sector and other segments of economy. “I hope we will see the reduction in the policy rate and the interest rate as per decline in the inflation rate,” he said. The SBP’s upcoming monetary policy review is due on Sept 12.
The minister said home remittances in July topped an all-time high, and the rating agencies Moody’s and Fitch had upgraded Pakistan’s credit rating by one notch each, which was external recognition that economy was set in the right direction.
“We have a long way to go, but the journey has to start from somewhere and the direction of the travel has to be right so that we can go towards sustainable macroeconomic stability,” he emphasised, adding that “this is the foundation on which the whole structure would stand because there was no path to growth without stabilisation”.
‘No going back on taxes’
Mr Aurangzeb also vowed to crack down on tax evasion. “Let it be very clear, this is not going to be taken back,” he said while calling upon the wholesalers, distributors and retailers to pay their due taxes.
He said the tax collection had increased by 29pc last year and yet the tax-to-GDP ratio did not cross 8.8pc. “This is not sustainable. We have to increase it to 13pc,” he asserted, adding that countries couldn’t be run on donations.
The minister deplored that those with a 43pc share in the economy were paying less than 1pc of tax. “We all should jointly request them to pay their due share of taxes and contribute to the economy,” he said, adding that otherwise, the burden would keep going back to the same people who are already burdened and frustrated.
He said the government was ready for engagements with traders and provided all sorts of facilitations and simplification, but there would be no exemption or retreat. The minister conceded a Rs98bn revenue shortfall in August but said this was despite payment of Rs132bn tax refunds to exporters.
‘Rightsizing’
The minister said the government was very clear that the “size of the federal government will come down”. For this, he said, a bite-sized execution process had been adopted. In the first step, six ministries were selected and two of them would be merged, reducing positions in grades 17 to 22. This will be followed by five more ministries and so on.
However, he clarified that it required changes to the Civil Servants Rules of 1973, for which the government, with the support of the coalition partners, would take legislation to the parliament and get it approved.
Govt fulfilling IMF conditions
Meanwhile, Prime Minister Shehbaz Sharif said on Tuesday that the government was fulfilling IMF conditions to secure its loan programme.
Speaking at a federal cabinet meeting, the premier hoped that it would be the country’s last IMF programme. “The programme we have with the IMF — the conditions that they have — is under their supervision, and we are fully taking steps to achieve it,” he added.
“The conditionalities will be fulfilled and our case will be brought forward to the (IMF’s executive) board for approval. God willing, there will be a new journey,” PM Shehbaz said. “We are working day and night with commitment. It is a difficult journey but not an impossible one.”
The prime minister also highlighted the reduction in inflation, noting that the burden was gradually easing. “Inflation reached single digits in August compared to around 27pc in the same month last year,” he said, commending the Ministry of Finance and the State Bank.
Syed Irfan Raza also contributed to this report
Published in Dawn, September 4th, 2024
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