Finance Minister Miftah Ismail on Wednesday said the International Monetary Fund (IMF) wanted Pakistan to take a number of steps to do away with subsidies extended by the previous government, including raising fuel price and power tariff, to revive its Extended Fund Facility (EFF).
The fund had set a series of prior conditions involving steep fiscal adjustment close to Rs1.3 trillion, Ismail told media before leaving for Washington.
The IMF wants fuel prices increased to break-even and taxes restored, amnesty scheme discontinued for industries, circular debt reduced, power rates raised and fiscal savings ensured in order to completely reverse the Feb 28 relief package, the minister said.
The previous government had a commitment to have a primary balance of Rs25 billion which was now in deficit at Rs1.3 trillion. “We have heard their (IMF) position but have not made any commitment yet,” he said, adding that Prime Minister Shehbaz Sharif was heading a coalition government and had advised him to pass on minimum possible burden to the people.
“We will not pass it on as suggested but something would have to be done because the IMF programme is inevitable,” he added.
The minister hinted at doing away with tax amnesty for industries at the outset and added that IMF’s greater focus was on ending fuel subsidy because it was creating fiscal hole while power tariff could somehow be delayed because its direct bearing on budget was not immediate.
He said about Rs100 billion saving could be made by cutting the development budget to Rs600 billion instead of Rs900 billion, which might not be spent in any case by the ministries.
“We will not cut a penny out of Benazir Income Support Programme,” he said, adding that to compensate, wheat flour had been reduced by Rs150 per 10kg to Rs400 while sugar would be sold at Rs70 per kg through utility stores.
“Edible oil price has also been reduced by Rs205 per kg and was now being sold at Rs260 per kg,” he said.
Responding to a question about its fiscal impact, Miftah Ismail said the Utility Stores Corporation (USC) had Rs8 billion allocation, of which only Rs4 billion had so far been spent, which meant space was available but this would be done in any case to provide relief to the people.
The minister said his priority was to secure one tranche of $1 billion from the IMF and prepare for the coming budget and not to club two quarterly reviews.
He said he was opposed to increase in personal income tax slabs because it was counter-productive but there could be discourse on taxing the rich, for example, through inheritance tax as tax equity was also important while pushing for tax efficiency.
But the problem is that this would then come back indirectly because otherwise the resultant devaluation would increase the financing gap and the higher fiscal deficit would cause widespread inflation, Ismail said, adding that the government would ensure ‘gentle landing’ of the unwinding of the ‘unscrupulous’ relief package that had put the country’s economic stability at stake.
“We will not allow disruption in economy through abrupt increase in fuel prices,” the finance minister said, while explaining that petrol price required Rs21 per litre increase for breakeven followed by Rs30 per litre petroleum levy and 17 percent GST that would take its price to Rs234 per litre. “This is not possible”.
He said the package announced by former prime minister Imran khan was totally ill-advised and illogical and was not at all based on the finance ministry’s summary.
He also bailed out former finance minister Shaukat Tarin over the package, saying he had not moved a summary on the issue; in fact, no finance minister in normal frame of mind could support such actions that were ‘not landmines but atom bombs’ and needed to be defused at the earliest.
Ismail said he approved Rs67bn fuel subsidy for April which had no prior approval despite announcement, while Rs96bn subsidy was now estimated each for next two months as per litre subsidy on diesel had increase to Rs51.52.
“Not only the government is paying these amounts out of the budget every month, but Rs25-50bn due in taxes was not coming. This, on an annual basis, translates into Rs1.8 trillion – larger than the country’s defence budget,” he said.
The minister said the poor people earning less than Rs25,000 were subsidising land cruisers to the extent of Rs1,700 per 80 litre filling and a truck from Karachi to Islamabad was being subsidised to the extent of Rs50,000 per trip.
“What you have done Khan Sahib to this country,” he questioned, adding that nothing could be more ruthless.
Responding to a question on IMF’s demand for more taxes, he said he had explained nothing could be achieved in taxes in these two months.
He said it was not a matter of demand by the fund but he personally believed there was no justification for Rs90bn subsidy being provided by the poor to the rich.
The finance minister expected rollover of $2.4bn by China in a couple of days followed by another $2bn in extension in Safe deposit besides increase in trade credit swap over the coming months.
He said about $4bn financing was required for current account deficit and arrangements were being made to ensure that foreign exchange reserves did not deplete further this fiscal year.
During his Washington visit, Mr Ismail said he was expecting to meet the IMF managing director, chief executive officer of the World Bank, executive directors of the G-7 nations, besides ministers of Turkey, Saudi Arabia and China as well as the IMF mission chief to Pakistan.
He said the government would ensure fiscal discipline and tighten its own belt to restore the IMF programme and no extra-burden would be put on the people.