Our note of dissent
We are of the opinion 1) Pakistan
already suffers from unsustainable debt servicing and the new agreement would
never enable the country to come out of debt circle. Pakistan will keep on
borrowing and repaying through the nose, 2) Hike in electricity and gas tariffs
will further erode competitiveness of the local manufactures and adversely
impact exports, 3) the country does not have infrastructure to workout cost of
crops and in turn income of farmers, the proposed 45% rate would be
meaningless, 4) the breach of “confidence deficit” will widen further 5) the hatred
against “ruling elite” is already on the rise and 6) in case anti-government
demonstration start, these could turn violent and create serious law &
order situation.
The press release issued by IMF conditions this agreement to
timely confirmation of necessary financing assurances from Pakistan’s
development and bilateral partners.
Some of the key milestones or reforms that Pakistan has
already taken or will take over the course of the program are:
Increase in tax to GDP ratio by 300bps:
1-
Under this 37-months program, the Government has
to enhance tax to GDP ratio by 300bps. Measures to achieve half of this target
(150bps) are already taken in FY25 budget by removing various exemptions and
broadening the tax base.
2-
Taxing
the untaxed and undertaxed:
Under this program, Government has also
changed tax regime of exporters from 1% of turnover full and final regime to
normal tax regime, wherein exporters will now be paying tax equal to other
corporates at 29% of profit before tax plus applicable super tax. Also, in a
bold move, Government has taxed retail sector and plans to introduce tax on
agriculture income from January 2025.
3-
National Fiscal Pact to be signed:
The new national fiscal pact is likely to
be signed between provincial and federal government for fair fiscal balance
between federal and provincial units. Through this, provincial governments will
be required to spend higher on education, health, social protection, and
regional public infrastructure investment, enabling improved public service
provision. This will result in lower expenditures of federal government in
above areas. However, there is no timeline given for such measure.
4-
Monetary Policy:
On monetary policy stance, IMF has noted,
it will continue to focus on supporting disinflation.
5-
Privatization:
On privatization side, it is noted that,
highest priority is given to most profitable State Owned Enterprises (SOEs).
6-
Other Measures:
Few other important measures are, phasing out
of agriculture support prices, phasing out incentives granted to special
economic zones, refraining from new regulatory or tax based incentive, or any
guaranteed return scheme including those projects which are channeled through
Special Investment Facilitation Council (SIFC).
Some of the key measures which Pakistan took before
clinching this deal were: 1) increasing the power tariff, 2) increasing the gas
rates, 3) approval of budget FY25, and 4) amendment in SOEs law, as per news
report. It is believed that some of these measures were taken as part of the
prior actions of the new deal.
