Pakistan Asserts Sovereignty in Response to IMF Budget Criticism
ISLAMABAD: Following the budget criticism from the International Monetary Fund (IMF) regarding the Pakistani government’s failure to expand the tax base in the fiscal year 2023-24 budget, Finance Minister Ishaq Dar emphasized that Pakistan, as a sovereign country, cannot accept all of the lender’s demands.
During his address to the Senate Standing Committee on Finance and Revenue, Dar addressed the IMF’s objections to the tax exemptions outlined in the recently unveiled budget. He asserted, “Pakistan is a sovereign country and cannot accept everything from the IMF.” The minister further stated that Islamabad should retain the right to grant certain tax concessions. “The IMF wants us to eliminate tax concessions in all sectors.”
Dar assured the senators that the government is well aware of the amount of tax revenue required and how to generate it. As a result, the tax target for the upcoming budget has been increased from Rs7.2 trillion to Rs9.2 trillion. He clarified that this target is in addition to tax exemptions and emphasized that no budget is being allocated to tax-exempt sectors. He also expressed the government’s intention to consult with the IMF regarding this matter, emphasizing Pakistan’s desire for autonomy in decision-making.
Focus on Economic Growth Drivers
The finance minister highlighted that the new budget focuses on four drivers for economic growth. He specifically mentioned the package allocated to the IT sector, emphasizing that the government will not deny concessions to the youth in this field solely based on IMF demands. Dar stated, “We aim to provide employment opportunities to the youth through IT sector development.” The government has set a target of $15 billion in IT exports within the next five years, aiming to increase IT exports from $2.5 billion this year to $4.5 billion in the coming year.
Addressing concerns about default, Dar suggested that geopolitical factors are at play. He stated, “Foreign hostile elements want Pakistan to face a situation similar to Sri Lanka’s, allowing the IMF to negotiate with Islamabad.” He criticized the amendments made to the State Bank of Pakistan Act during the previous government’s tenure, claiming that these changes resulted in “a state within a state.” Dar argued that the amendments are unsustainable and emphasized that further modifications to the SBP’s governing laws are still required.
Regarding external payments, the finance minister reassured that Pakistan will not defer any foreign payments. He stated, “Pakistan does not need to approach the Paris Club for loan rescheduling. We will manage external payments independently.” Dar also mentioned that the managing director of the IMF has assured Pakistan that the country will not default and that good news can be expected by June 30.
IMF Publicly Criticizes Pakistan’s Budget
In a separate development, the finance minister provided detailed information to the senators about the IMF’s dissatisfaction with Pakistan’s budget for the fiscal year 2023-24. Earlier reports had revealed the IMF’s concerns regarding the budget, particularly the missed opportunity to broaden the tax base and reduce tax expenditures, as well as the terms of the tax amnesty in violation of the fund’s program conditionality.
The IMF called for significant changes in the budget and expressed its readiness to refine it before its passage in Parliament. Esther Perez Ruiz, the IMF’s Resident Chief in Pakistan, confirmed that the staff is engaged in discussions with the government to address policies for maintaining stability.
However, Ruiz stated, “The draft FY24 budget fails to broaden the tax base in a more progressive manner, and the extensive list of new tax expenditures reduces the fairness of the tax system and diminishes the resources available for supporting vulnerable BISP recipients and development spending.” She also criticized the new tax amnesty as being contrary to the program’s conditions and governance agenda, warning that it sets a damaging precedent. Ruiz suggested that measures to address the energy sector’s liquidity pressures could be included in the broader budget strategy.
The IMF team stands prepared to collaborate with the government to refine the budget before its passage.
Published in PakWeb, June 15th, 2023.
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