Minister for Finance Shaukat Tarin candidly admitted that the International Monetary Fund’s (IMF) pressure influenced many of the government’s decisions.
He was talking to a private news channel on Monday while discussing a number of issues, including Supplementary Finance Bill 2021, State Bank Amendment Bill, inflation, prior actions demanded by IMF and other core issues related to finance.
Terming the geo-political situation of the region as a reason for the IMF being assertive, Shaukat said that the talks with the lender aiming to restore the $6 billion Extended Fund Facility (EFF) were not a piece of cake after the US pullout of Afghanistan.
He said that another reason was the withdrawal of the former finance team’s commitments made in March 2021 with the lender while borrowing a few million dollars as a loan.
The minister said that the Finance Supplementary Bill and State Bank of Pakistan Amendment Bill 2021 have been presented in the National Assembly (NA) after Cabinet’s approval and now the government will try to get both the bills approved as soon as possible.
A detailed briefing has been given to the “allies” to take them into confidence over the bills presented in the NA and their apprehensions have been addressed.
“Allies were told that complete bill volume is not more than 343 billion and they understood it,” Shaukat said.
About the possibility and deadline of the finance bill’s passage, he expressed the hope that it will sail through easily and would be enacted by the parliament within the given time frame as committed to the IMF.
He said that the IMF can be informed that the process has been started once the NA approves both the bills.
“We have asked IMF to schedule a meeting on January 12, and they have agreed to it,” he added.
“It may take three to four days more beyond the important date of January 12, when IMF board is going to approve the $1 billion tranche.”
About the other bill tabled in the National Assembly, which deals with the autonomy of the State Bank of Pakistan (SBP), the finance minister made the point that this bill was needed to be passed by the Senate as well, and he expressed the hope that this bill, too, will be passed.
About the autonomy of the SBP, the minister said that the SBP was being given independence, but the bank can never be separated from the Government of Pakistan and the role of the finance ministry cannot be eliminated.
Abolishing the policy board won’t make a big difference, the finance minister stressed.
When asked about the coordination between the SBP governor and finance minister, Shaukat Tarin said that he speaks with the governor at least thrice a day on issues.
The perception about misunderstanding and differences between them is wrong, he continued.
Talking about the political and financial implications of the Supplementary Finance Bill and State Bank Amendment Bill, he said “we are not imposing new taxes in the mini budget, but withdrawing tax exemptions amounting to Rs343 billion.”
He reiterated the point that the common man will have to bear the burden of Rs2 billion only and tax exemptions were being withdrawn from items the elite class uses.
He said that raising the tax collection target to Rs6.1 trillion from the previously set target of Rs5.9 trillion is not a compulsion made by the IMF.
“We offered Rs6.1 trillion ourselves, keeping our record collection in the first half of year, which is well beyond the target.”
Replying to a question that if tax collection won’t inflate with this withdrawal of exemptions, then what is the purpose of the whole exercise and why the IMF has been pushing for it, Shaukat said that it was done to document the economy as several sectors were not documented.
When asked if it was merely for the purpose of documentation, then why had the tax rate in certain sectors been raised, as it could be documented on the existing rate, Shaukat said the “IMF is of the view that there should be uniform sales tax in all the sectors and then subsidies or refund, whatever needed, should be granted.”
The finance minister agreed that there was a rise of 12.1 percent year-on-year Consumer Price Index (CPI) data recorded in December 2021.
He said that there was another angle to see the things; rather than comparing data to statistics of last year, it should be taken that prices went down in December, as compared to November.
“Our approach is half-glass full, and your approach is half-glass empty,” Tarin said.
He termed this rise in prices as a dependent phenomenon as the country imported commodities and global commodity prices were on the rise, but “this global cycle can’t stay for long as the world is taking steps to bring the prices in control.”
“We need to do several things right, we will have to take measures to curb rupee depreciation, we need to work for control on supply chain of commodities and idea of cold storages of commodities.”
He also stressed the point that he was clear in approach and will keep on expressing his heart and mind on issues.
“We negotiated with the IMF and the rupee showed a recovery and it will show more improvement when we get the tranche.”
He endorsed his view about the rupee being undervalued unnaturally. He said that the SBP was proactively working now in this regard.
“I made my views clear and categorically conveyed it to the SBP governor and commercial banks that how over-profiting was being practiced,” Shaukat replied.
The minister was satisfied with the decisions being taken by the government.
“Things are shaping up in the right direction,” he added.
About electricity pricing issue, the minister said that he still “believes that if capacity payments is one issue, line-losses is the other issue which is costing us badly; we need to fix this as well and performance of DISCOs need an improvement.”
“I pray that we leave the IMF once and for all now. If we were doing well, then what was the need to go to IMF?”
The finance minister also spoke openly about the bitter facts like the mood of IMF, saying that the petroleum levy has been increased as per the IMF’s demand.
“We had cut down the sales tax on petroleum products to zero but were compelled to apply the petroleum levy due to IMF’s strict behaviour,” said Tarin, adding that the IMF had lent the country some money back in March 2021 on account of an increase in the petroleum levy.
The minister said that the Finance Supplementary Bill and State Bank of Pakistan Amendment Bill 2021 have been presented in National Assembly (NA) after the cabinet’s approval and now the government will try to get both the bills approved as soon as possible.
The finance minister said that the tool of targeted subsidy was still with him when asked about taxation on 850cc vehicles, solar panels and point of sales, which should have been incentivised as per the government policy to encourage its use. The minister showed reluctance on commenting openly on the growing trade deficit and current account deficit.
“Razzak Dawood should be questioned about this.”
He predicted that the trade deficit would be lower in the next half of the fiscal year, citing no need for importing wheat, sugar and vaccines like last year.