The government has conveyed to the International Monetary Fund (IMF) that Pakistan at the moment does not have the capacity to raise its tariffs or taxes, said Finance Minister Shaukat Tarin on Wednesday.
The government is trying to convince IMF that Pakistan has not enough space to raise power tariffs and taxes. The World Bank and IMF have been sympathetic to our point of view,” the minister said at his first press conference in Islamabad after assuming the charge. “Pakistan has not yet come out of the IMF programme, we have discussed with them and told them that our revenues were increasing at 92 per cent but the third wave of Covid came and they decreased after that. At this time, we don’t have the capacity to increase tariffs or [adopt] incremental taxes, our common man is completely fed up of this inflation,” he said.
He said the current programme with the IMF is different from the earlier programmes due to unfriendly environment on the international front. “Some of hostile countries also made the programme more difficult for Pakistan and such conditions were placed that had a political cost. But despite that, the government followed and managed to bring economic stability,” he said.
The minister made it clear that Pakistan was not quitting the IMF programme, however the country’s interests will be given due consideration. “Our common man has been tired of the inflation and if fuel charges and tariffs are increased, this will further instigate the inflation,” he said. “We have talked to the IMF and the World Bank and they have responded sympathetically,” he added.
The minister said the government is trying to convince IMF that tariff increase was not the only way to raise money. “The second thing is about taxes, this is not necessary to withdraw exemption,” he said, adding, “We will increase taxes through innovative ways.”
The minister said tax to GDP ratio would reach 10.25 percent and every year this would have to slowly and gradually increase by 1 to 1.25 percent. “The IMF had asked Pakistan to increase Rs 3800 billion to Rs 5500 billion which is not feasible to implement. If we start raising the tax to GDP ratio by 1 to 1.25 percent then in 7-8 years we will reach 20 percent,” he added.
Tarin said sudden increases on the orders of the IMF, as had been done in 2019, would not happen. “This is the wrong way of doing it,” he said. Instead, he said, gradual annual increases would be the better way to go and efforts would be made to convince the IMF about it. “If people think we are trying to come out of the IMF programme, then no we will not. You get a stamp [of approval] from it because of which the world sees you are going towards stability, however, the targets they’ve given us at this time, we’ll tell them that the third wave of Covid-19 has arrived and give us some space at this time.”
Terming revenue generation, power reforms, price stability and overall economic growth as four big challenges, Tarin said that the government has devised a comprehensive strategy to come out from stability phase to sustainable growth path. He said the government has formulated around 12 sub-groups in designated areas to firm up proposals and present short-, medium- and long-term plans with respective timelines for an effective way forward to lead the country towards sustainable growth.
He said that inflation had been a serious concern for the government, saying that there was a huge gap between the price the farmers are selling the products and in the retail market, which needed to be bridged. He said that the key focus is to bring price stability in the country. Likewise, the government wanted to expand the social protection network by including other sectors like health, employment and skill development in it, he added.
He said that fiscal stability is another area where the government was focusing on, adding that despite devolution of various ministries and departments, the expenditures could not be curtailed. Hence focus would be on it to cut the expenditures and bring about fiscal stability, he added.
He said that the Federal Board of Revenue (FBR) had done pretty good job, but admitted that there was element of harassment, which he said would be eliminated. The reforms in power and energy sector were areas where the government would be focusing, he said, adding that there was huge under-spending in agriculture sector.
