LAHORE: “The aim of the IMF program is to promote macroeconomic stability in Pakistan. Fiscal policy and surveillance policy must promote and promote the same vision”.
These were the views of International Monetary Fund (IMF) Resident Representative Esther Perez Ruiz during a speech to the Lahore Chamber of Commerce and Industry on Tuesday.
LCCI President Mian Nauman Kabir, Vice President Haris Ateeq and LCCI Executive Committee members were present for the occasion.
Esther Perez Ruiz further said that the objective of the IMF program is to provide Pakistan with a set of policies that can promote sustainable and inclusive political growth.
She said that Pakistan’s tax-to-GDP ratio is very low, the purpose of eliminating sales tax exemptions through the recent Finance Bill is to reduce the complexity of the tax system. She said that Pakistan should not only seek to take measures related to taxation, but that there are other ways to improve the competitiveness of the economy.
LCCI President Mian Nauman Kabir said that being the country’s premier business support organization, LCCI is very sensitive to the impact of the ongoing 22nd IMF program on the national economy and in particular on growth. from the private sector. Hopefully we will see the success of this program, just like the 21st program.
He said this meeting will give the IMF an opportunity to understand the business community‘s perspective on the IMF’s ongoing program. Secondly, it gives us a chance to develop a better understanding of IMF policies and also to learn about the major successes related to IMF programs adopted by other countries.
He said there was a need to broaden the tax base by attracting more people into the tax net rather than burdening existing taxpayers. He said the government has the data of all industrial and commercial electricity connections which can be used to widen the tax net.
Mian Nauman Kabir said that we are well aware that Pakistan has just received the tranche of about one billion US dollars from the IMF under the Extend Fund Facility for Pakistan, following the successful completion of the 6th review. This brings total disbursements under the IMF program to about $3 billion. Over the past few decades, many developing countries, including Pakistan, have made use of IMF loan programs. Given the broad scope of IMF programs, it is important to analyze the impact of these programs on economic growth and other dimensions of economic performance, he added.
The LCCI chairman said it is also imperative to see whether developing countries benefit from access to IMF programs or whether they would be better off if such programs did not exist. It has been repeatedly observed that IMF programs often lead to interest rate hikes, local currency devaluation and, as a result, high inflation.
The IMF conditions also include an increase in electricity tariffs and an increase in tax rates. A recurring theme that has been observed is that IMF programs only help to overcome immediate financial difficulties, but do not address their root causes.
In the context of Pakistan, these measures have the effect of increasing the cost of doing business and hampering the competitiveness of our private sector, which is already facing serious economic challenges.
He said that to meet the conditions of the IMF program, the government recently withdrew sales tax exemptions on imported factories and machinery through the mini-budget. This measure would make it difficult for our industrial sector, especially SMEs, to undertake technological upgrading and, therefore, the export competitiveness of our industrial sector would be negatively affected.
He said LCCI has always advocated for exchange rate stability. The massive and brutal devaluation that has taken place in recent times has led to an exorbitant increase in our import bill with minimal benefit for exports. Since July 2019, when Pakistan entered the recent IMF program, a devaluation of more than 10% has taken place. In addition, during the period preceding the launch of the recent IMF program (August 2018-July 2019), a devaluation of around 28% took place, adding that due to the devaluation, the trade deficit increased by exorbitant way. In the first seven months of the current fiscal year, imports topped $46 billion, up 58 percent from the same period a year earlier, pushing the trade deficit to $28 billion. This has helped push the inflation rate to 13% in January 2022. Since our industries are heavily dependent on imported raw materials and machinery, the sharp devaluation disrupts the entire economic cycle.
LCCI Vice President Haris Ateeq endorsed the documentation of the economy and said the companies are documented and are in the tax net. Tax rates for these companies should be reduced.
Copyright Business Recorder, 2022