The purpose of the IMF loan programme is to promote macroeconomic stability in Pakistan and fiscal and monetary policies should support the same vision, remarked International Monetary Fund (IMF) Country Representative for Pakistan Esther Perez Ruiz.
Speaking at the Lahore Chamber of Commerce and Industry (LCCI) on Tuesday, she underlined that the aim of the IMF programme was to bring a set of policies that could promote sustainable and inclusive policy growth.
“Pakistan’s tax-to-GDP (gross domestic product) ratio is very low,” she said, adding that the objective of eliminating sales tax exemptions through the recent Finance Act was to reduce complexity in the taxation system. Ruiz was of the view that Pakistan should not only look for undertaking measures related to tax but there were other ways as well to enhance the competitiveness of the economy. On the occasion, LCCI President Mian Nauman Kabir emphasised the need for widening the tax base by bringing more people to the tax net, rather than burdening the existing taxpayers.
In that regard, he pointed out, the government had the data of all industrial and commercial electricity users, which could be used to broaden the tax net. “This meeting will give the IMF an opportunity to understand the perspective of the business community about the ongoing programme,” he said.
Moreover, “it gives us a chance to better understand IMF policies and also know about the major success stories related to IMF programmes, adopted by other countries.” Read Pakistan to get $3b from IMF in next 7 months In the recent past, many developing countries, including Pakistan, had resorted to IMF loan programmes, and “it is important to analyse the impact of these programmes for economic growth”.
“It is imperative to see if the developing countries benefit from these programmes or would the countries be better off without it.”
Sharing his observations, Kabir said that IMF programmes resulted in interest rate hikes, devaluation of local currency and an increase in inflation.
IMF conditions also included a hike in power tariffs and an increase in tax rates, he mentioned, adding that such packages “only help overcome immediate financial difficulties but do not address their root causes”.
In the context of Pakistan, Kabir mentioned that such measures increased the cost of doing business and hampered the competitiveness of the private sector, which “is already facing stiff economic challenges”.
The government had recently withdrawn sales tax exemptions on imported plant and machinery through the mini-budget to fulfil the IMF conditions, he recalled.
These measures would restrict the industrial sector, particularly small and medium enterprises (SMEs), from technology up-gradation, he underlined. “Hence, the export competitiveness of our industrial sector will be adversely affected.”
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Talking about the exchange rate, Kabir mentioned that the massive and abrupt devaluation of the rupee had resulted in an exorbitant increase in the import bill with minimal benefit for exports.
The rupee depreciated more than 10% since Pakistan entered the IMF programme in July 2019, he underlined. Before the commencement of the programme, the rupee depreciated around 28% from August 2018 to July 2019.
“This currency devaluation has increased the trade deficit exorbitantly,” Kabir lamented.
Giving statistics, he said that the country’s imports touched $46 billion in the first seven months of the current fiscal year, around 58% higher than the same period of the previous year, which took the trade deficit to $28 billion.
“This has pushed the inflation rate to 13% in January 2022,” he mentioned. “Since our industries are heavily reliant on imported raw material and machinery, the abrupt devaluation disrupts the entire business cycle.”
