Pakistan, IMF agree ‘social protection’ top budget priority – Business

WASHINGTON: International Monetary Fund (IMF) officials view Pakistan’s budget for 2022-23 as a document with points for further negotiations on resuming an IMF package for Islamabad.

Pakistan on Friday unveiled a $47 billion budget for 2022-23, which includes several fiscal consolidation measures that Islamabad hopes will convince the IMF to resume much-needed bailout payments to the country.

Diplomatic sources in Washington say that during staff-level talks, held in Doha last month, the IMF and Pakistan reached agreement on several key issues, such as withdrawing subsidies and increasing of tax collection.

According to some sources, one of the key points on which the two parties agreed was social protection, ie reducing the impact of austerity measures on the poor. “IMF officials recognize that some of these measures can hurt the poor and are ready to work with Pakistan to reduce the impact,” one of the sources said.

Fund works with Islamabad to reduce the impact of austerity on the country’s poorest classes

After the first round of talks with IMF officials in Washington in April, Finance Minister Miftah Ismail had hinted at issuing fuel passes for vehicles used by ordinary people or for public transport.

“Negotiators can also work to reduce the impact on essential commodities, such as groceries,” another source said. Even the price of locally produced essentials can rise when fuel prices rise.

Similar arrangements could also be made for the electricity sector to protect low-end consumers, one of the sources said, pointing out that the IMF sees such measures as “social protection” and would be ready to help the government to do so.

The sources also dismissed media speculation that the IMF would not negotiate with an interim government. “The IMF will have no problem dealing with an interim government, if the measures it negotiates can be implemented during its tenure,” one of the sources said.

Another source said “the IMF is also concerned about governance and corruption” and “would not like to be associated with a program perceived as open to corruption”.

“The Fund also would not like to be seen as helping one group of politicians against another, whether in power or in opposition,” the source added.

The aim of the measures suggested by the IMF is to reduce Pakistan’s fiscal and current account deficits, the sources said, adding that the Fund wanted a better arrangement this time around, as the previous government deviated from the policies agreed at the last exam.

The government has already withdrawn subsidies to the fuel and electricity sector granted by its predecessors, which contravened the arrangement with the IMF.

Measures announced in the budget include an additional 2% tax on individuals with an annual income of Rs 30 million, a 20% increase in tax collection by preventing tax evasion and a reduction in fuel consumption to curb the ever-increasing oil bill.

The government has also indicated that it may raise fuel prices further, a move that will hurt consumers across the board. The government also plans to raise Rs 96 billion through privatization in 2022/23.

IMF representative in Pakistan Esther Perez Ruiz told media on Monday that Pakistan needs to take tougher measures to keep the IMF lending program on track.

Pakistan had signed a 39-month $6 billion Extended Financing Facility with the IMF in July 2019, but the Fund halted disbursement of about $3 billion when the previous government reneged on its commitments.

Posted in Dawn, June 15, 2022

Joel C. Hicks