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Pakistan to Seek ‘Longer, Larger’ IMF Bailout

Finance minister vows to bring wholesalers, real estate, agriculture into tax net, digitize tax system

by Staff Report

Finance Minister Muhammad Aurangzeb. Photo courtesy Ministry of Finance

Newly appointed Finance Minister Muhammad Aurangzeb on Tuesday announced the government hopes to negotiate a “longer and larger” facility with the International Monetary Fund (IMF) in a bid to sustain macroeconomic stability.

The former professional banker told media in Islamabad that an IMF team would visit Islamabad this week for the second review of the ongoing $3 billion Standby Arrangement (SBA). “We would be very keen to start discussions on another EFF [Extended Fund Facility] with them” during these talks, he said, adding further negotiations would be taken forward on the sidelines of the IMF and World Bank’s spring meetings during April in Washington.

While refusing to go on the record about whether Pakistan would seek to augment the EFF with climate risk-related financing from the IMF, as recently accomplished by Bangladesh, he said he was optimistic about the successful conclusion of the final review of the SBA. He stressed it was very important for Pakistan to codify macroeconomic stability, noting this was why the country needed a longer and larger program to adequately prepare the next budget.

After securing the new IMF deal, he said, Pakistan would secure foreign inflows through commercial financing and launching international bonds. “The Special Investment Facilitation Council is an important platform to bring equity and investment from abroad,” he said, adding the era of securing deposits and rollovers from friendly and bilateral partners was over so viable and bankable projects would be required.

Noting it was encouraging to see 2023 end with Pakistan in a better economic position that a year earlier, he said sustained macroeconomic stability would gradually lead to a higher growth rate. Otherwise, he warned, there was no magic fix to shift to high growth without creating foreign exchange crises as witnessed in the past.

To a question, Aurangzeb said almost all reforms and structural benchmarks were in consideration, stressing everyone was aware of them, as they had all been part of recent IMF programs. “Unless structural benchmarks are completed, continuing with patchwork is no more the way to live with for a sovereign of 245 million with nuclear capabilities,” he said, adding it was necessary to move toward the execution and implementation of all economic reforms.

The finance minister said the government would soon introduce taxation for wholesale businesses, real estate, and agriculture to address the mismatch between tax contribution and GDP share. He noted the many analytical reports, including from the World Bank, that talked about turning an economy of over $300 billion to $3 trillion by 2047. He said the government planned to address all leakages, beginning with FBR reforms through digital expansion for transparency and better service. He stressed that digitization would minimize human interactions and boost efficiency.

“This is a low-hanging fruit,” he said, adding a young data analytics teams would be hired to process available data before sending them to field formations. “We have already started working on who will give us expertise, who will be the implementation partner, and what the end-to-end journey for expanding the tax net will be. This will play a big role in plugging the revenue leakage,” he claimed.

On privatization of loss-making state-owned enterprises, he said the government was committed to this and would begin with PIA. He said the finance ministry would fully support Privatization Minister Aleem Khan in this regard, as PIA’s divestment was ready. He said the new government would only provide a policy framework, allowing the private sector step in and lead the business, including through the public-private model.

Referring to inflation, the minister this was a critical issue that could be tackled by achieving macroeconomic stability. Stressing the State Bank’s monetary policy committee was independent, he said he expected the policy rate to gradually decline, as this was very important for business.

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