Economists warn as Pakistan presents ‘mini budget’ to meet IMF conditions. Government also tables bill to grant autonomy to the central bank as Fund’s term
KARACHI: The International Monetary Fund (IMF) has postponed the January 12 meeting of its executive board for the 6th review of Pakistan’s loan program on the request of Pakistani authorities, an IMF official confirmed on Monday.
Finance Minister Shaukat Tarin on Thursday presented a much-awaited supplementary finance bill, popularly known as the mini-budget, ending tax exemptions on nearly 150 items as a prior action for the revival of a $6 billion loan program from the International Monetary Fund (IMF).
The executive board of the Fund will meet on January 12, 2022, to decide if it will revive the stalled loan package, approved in 2019 to rein in mounting debts and stave off a looming balance of payments crisis, in exchange for tough austerity measures.
In late December 2021, the Pakistani government tabled the Finance (Supplementary) Bill 2021 and State Bank (Amendment) Bill 2021 in the National Assembly to meet one of the five conditions set by the IMF for the revival of $6 billion IMF loan program Pakistan secured in 2019, which has been stalled since March 2021.
Parliamentary backing of the bill would allow government to generate additional revenues of around Rs343 billion mainly through eliminating sales tax exemptions on nearly 150 items.
“The board meeting for consideration and eventual approval of the 6th review under the EFF (Extended Fund Facility) is being postponed at the request of the authorities,” Esther Perez Ruiz, the IMF country representative for Pakistan, told Arab News on Monday. “The new date is yet to be determined,” she added.
Pakistan’s finance ministry said early Monday it had requested the IMF to reschedule the meeting at the end of this month.
“Government of Pakistan has introduced both the bills in the National Assembly and IMF has moved the 6th tranche recommendation to its board for consideration on the 12th January,” it said in a statement.
“As soon as the legislative procedures are completed, the IMF board will consider it for approval.”
On Sunday, Muzamil Aslam, a spokesman for the finance ministry, told Arab News that Pakistan had made no request to delay the IMF board meeting.
Earlier this month, the finance ministry said the government had introduced both bills in the National Assembly and the IMF had moved the 6th tranche recommendation to its board for consideration on January 12.
Pakistan’s parliament is expected to debate the finance bill this week to meet the IMF condition and qualify for the continuation of the $6 billion loan program.
In November 2021, Pakistani authorities and IMF staff had reached a staff-level agreement on policies and reforms needed to complete the 6th review under the $6 billion loan program.
The revival of the program would make available $1,059 million that would bring total disbursements to Pakistan to about $3,027 million and help unlock significant funding from bilateral and multilateral partners, according to the IMF.
The IMF has given a five-point action plan to Pakistan, including withdrawal of tax exemptions, passing of the State Bank (Amendment) Bill and increase in energy tariff.
Pakistani economists fear the passage of mini-budget would fuel the already increasing inflationary pressure on the country. However, finance minister Shaukat Tarin has repeatedly denied the notion, saying the measures are not inflationary in nature and only luxury items are being taxed.
Pakistan recorded an increase of 0.08 percent in weekly inflation during the week ending on January 06, mainly due to an increase in the prices of food and non-food items.
Monthly inflation rose to a 22-month high of 12.3 percent in December 2021, driven by higher food inflation, increase in energy tariffs, and rise in prices of petroleum products.
“In 2021, inflation averaged 9.5 percent slightly higher than the 9.4 percent inflation recorded in 2020. In the first half of the current fiscal year (1HFY22), inflationary pressures were more prominent as it increased to 9.8 percent versus 8.6 percent in same period last year,” a research report by the Karachi-based Topline Securities brokerage firm said last week.
The report predicted an uptick in inflation going forward in the remaining half of the fiscal year due to “expected withdrawal of tax exemptions, increase in energy tariffs and higher petroleum levy.”
Pakistani parliamentarians are also concerned about the expected inflationary pressure.
“This is not governance, this is signing the lives and livelihoods of hardworking Pakistani people off to the IMF,” Sherry Rehman, parliamentary leader of the opposition Pakistan Peoples Party (PPP) in the Senate, said in a statement last week.
“There is a mini-budget every week; prices of all essential items such as flour, sugar, electricity, fuel and medicine have all skyrocketed during the tenure of the government and yet they claim that there is no inflation in the country,” she said.
“Gas alone has risen by a massive 300 percent, despite this, the supply of gas is abysmal throughout the country; people cannot cook food and industries can no longer function.”