Not on IMF agenda, but Pakistan hopes to secure bailout

Finance Minister Muhammad Aurangzeb said on Tuesday that the government was at the “advanced stages” of getting assurances about external financing but he again did not give a firm timeframe to conclude the pending $7 billion deal with the International Monetary Fund (IMF).

The statement came the day the IMF released its executive board meeting calendar till September 13 without putting Pakistan on the agenda.

The reason for keeping Islamabad out of the schedule is the country’s inability to secure the rollover of the $12 billion old debt and another $2 billion in fresh loans.

“On the discussions with the IMF, we are in advanced stages in terms of getting assurances around our external financing,” Aurangzeb said in his televised speech at the state-run news channel.

The finance minister further said that he was hopeful that the IMF Executive Board will approve the $7 billion programme “on time”. But he, for the first time, did not mention the month of September, contrary to his last statement on the issue in which he had said that the IMF board would approve the case in September.

Pakistan and the IMF had signed the staff-level agreement for a 37-month Extended Fund Facility (EFF) worth $7 billion on July 12th. The country was hopeful to receive the final endorsement of the executive board before the end of August.

However, it could not materialize due to the country’s inability to secure $12 billion in rollovers from Saudi Arabia, China and the United Arab Emirates.

Pakistan has also sought an additional $1.2 billion loan from Saudi Arabia to address a $2 billion financing gap.

The finance minister’s statement affirmed that these deals were still pending, though he was constantly in touch with his counterparts in these countries.

The government’s problems augmented after the Punjab government gave Rs45 billion to Rs90 billion two-month subsidy on electricity. The IMF has now permanently banned any subsidy on gas and electricity by the provincial governments during the duration of its programme.

Aurangzeb lauded the role of the four provincial chief ministers for helping in reaching the staff-level agreement with the IMF. He reiterated the prime minister’s earlier statement that this is going to be Pakistan’s last programme with the IMF. “For this, we need to deliver on structural reforms,” he said.

FBR collection shortfall

The finance minister also spoke about the failure of the Federal Board of Revenue (FBR) to meet its two-month tax collection target of Rs 98 billion. He appealed to the protesting traders to contribute to the tax collection but said the government would not withdraw the traders’ scheme.

“I want to be clear that this is not going to be taken back”, the finance minister said.

However, the FBR has already issued a tamed income tax return form for the traders and omitted the requirements for disclosing the details of their assets and bank accounts.

The government remains adamant about increasing tax collection, the finance minister said.

“The 43% of sectors in this economy pay less than 1% tax,” said Aurangzeb. “We all have to contribute, otherwise we will keep on going to the same for more, and there too, we do not have much space,” he said.

Aurangzeb admitted that the salaried class and the manufacturing industry are “already paying way above what they are contributing to the GDP”. He repeatedly urged wholesalers, retailers and distributors to contribute to the country’s economy. The government is ready to facilitate and engage with them, he said.

He said that the impact of tax digitisation measures will become evident from September onwards.

The FBR on Sunday officially admitted that the tax machinery suffered a huge shortfall of Rs98 billion in tax collection during the first two months of this fiscal year.

The finance minister said that although the FBR missed the target, there was a 44% increase in the payment of refunds. The minister vowed that the government will not stop the processing of refunds to meet the targets, although there were source reports that the refunds may not be processed as swiftly as in the past two months.

On rightsizing, Aurangzeb maintained that the incumbent government “is very clear that the size of the federal government will come down”.

One of the members of the right sizing committee, Dr Kaiser Bengali resigned this week in protest of the government’s inability to take any meaningful step to reduce the expenditure.

Prime Minister Shehbaz Sharif had announced plans to wind up the Utility Stores Corporation (USC) but the Industries Minister Rana Tanveer Husain said on Monday that there was no plan to close down the state-run utility stores’ chain.

The finance minister said that due to improved economic indicators, all the backlog including import-related letters of credit, contracts or dividend and profit remittances have been cleared.

“Similarly, the inflation rate has reduced to 9.6% in August 2024 from 27.4% in the same period last year. As the inflation rate is gradually reducing, the policy rate is coming down gradually, which is aiding the economy, especially the industrial sector.

The interest rates will reduce in line with the reduction in inflation rates, the finance minister said.

Compared to the 9.6% inflation rate, the interest rates are set at 19.5%. The central bank-dominated monetary policy committee is going to meet next week to review the current interest rates.

Aurangzeb said that the improvement in credit ratings by Fitch and Moody’s is an “external recognition” that the economy is moving in the right direction. He said that there is no path to growth without stabilisation.

“We have a long way to go, but we need to recognise the positive macro indicators,” he said.