Published Date: Apr 15, 2021
EFF programme open to adjustment
ISLAMABAD: The duration and size of the International Monetary Fund’s (IMF’s) Extended Fund Facility (EFF) programme continues to be the same, however it will be adjusted in the event of a need arising as a consequence of to third Covid-19 wave.
This was stated by Teresa Daban Sanchez, IMF Resident Representative during a keynote session with Dr Abid Qaiyum Suleri, Executive Director, Sustainable Development Policy Institute (SDPI) on Wednesday.
“In principle, the duration and size of the programme continues to be the same right now (as in the second to fifth quarterly review agreed on 16 February 2021) but like in previous reviews recalibration on the speed of implementation of policies reforms will continue. The economy is improving however there is still space and room to continue policy implementation with the reform programme,” she added.
Sanchez said that Covid-19 shock temporarily disrupted progress under the EFF programme however the authorities’ multifaceted policy response has been crucial in mitigating its human and economic impact. The Covid-19 shock has required a recalibration of policies and reforms. The new package strikes an appropriate balance between supporting the economy, ensuring debt sustainability and advancing structural reforms. The authorities remain committed to ambitious policy actions and structural reforms to strengthen economic resilience, advance sustainable growth and achieve the EFF’ medium term objectives, she added. She further added that the programme aims to improve institutions; and enhance the performance of a regulatory institution like NEPRA for fiscal discipline. Policies need to be adjusted realistically and if there is any need in the third wave then the programme will be adjusted accordingly – the package is not a strait-jacket.
Replying to a question of the possibility of another Rapid Financing Instrument (RFI), she said the government is monitoring the third wave and it depends on how the pandemic evolves; related policies would be adjusted to the situation on the ground for sure and if there is any need to increase spending – whether on social support for the vulnerable or for a higher level of Covid related health spending it will be accommodated in the fiscal strategy and would be reviewed as an adjuster and it would not be a problem.
She said extra expenditure would require extra funding which needs to consider many other factors. There are other ways of funding if the situation is very complicated. If Pakistan needs extra funding the international community would definitely consider support but it is a secondary matter and the important thing is to have strategy with programmes that support the vulnerable.
Replying to another question on benchmark related to National Socio-Economic Registry (NSER) by end June 2021, she said the goal is to support the people in need because of the third wave. If it is completed it would be much better and can identify the people in a better way. There is no compromise on helping people and saving lives for sure, she added.
Pakistan has been proposing State Bank of Pakistan (SBP) reforms in the past. On the perception that granting autonomy to SBP would compromise national sovereignty under the IMF programme, Sanchez stated that all reforms that have been recommended were long overdue and necessary to help the poor and vulnerable, adding that the IMF cannot dictate the country’s legislation and plays an advisory role, upon request adding that countries having independent central banks are more stable from a macroeconomic perspective. Pakistan is doing just what peer countries are doing to have more strong and stable predictable policy making for future, she added.
Sanchez stated that “a change or transition in the ministers or authorities does not affect our role and commitment with the people of Pakistan.” On tax reforms, she said that tax policy reform needs to be very comprehensive and deep and corporate income tax and person income tax both need to be strengthened.
While commenting on circular debt, Sanchez said the debt sustainability is the main role of the IMF in any country and with right policies and with improved management countries can better manage their debt profile. Pakistan is doing well in this area of the programme. SOEs’ improved management would be a major component for the betterment of the country.
Replying to a question on power tariff increase, she said that “once the review has been completed the government puts together a strategy package, the goals, the measures, calculations of actions and risks and we then begin work on the new review – the technical work does not stop.”
Replying to another question, she said that provinces are on board in the whole tax harmonization strategy. “Though it’s a complex matter but they are advancing positively,” she added.
Regarding cut in Public Sector Development Programme (PSDP) she said there is room for spending which is good for the country including social and infrastructure. “My perception is that the PSDP portfolio has been challenging because of Covid and its implementation would have been affected or there may have been some different consideration there, but there is no constraint from the IMF under the programme.
She said Pakistan is all set to achieve some major goals including revenue base fiscal sustainability. It is being achieved through removing exemptions and privileges, enhancing social and productive spending, coordination with provinces, and elimination of quasi-fiscal circular debt and SOE losses.
The goals that are very important for the future direction of the country include a market determined and flexible exchange rate as well as an independent central bank with primary focus on price stability. Moreover, strengthening of social safety net to protect the most vulnerable is a key requirement in addition to strengthening institutions and bringing reforms, especially in the areas of PFM, central bank’s autonomy, tax policy and administration, energy sector, SOEs administration and FATF, etc.
While shedding light on the impact of Covid-19, she remarked that the economy was on track with 2.4 percent growth rate till March 2020. However, after May 2020, it witnessed decline by 1.5 percent as resources were diverted towards Covid-19 mitigation and containment.
“In the current situation and amid the third wave of the pandemic, the growth is projected at 1.5 percent and inflation will remain volatile,” Sanchez said and added that the monetary policy is accommodative and fiscal policy is prudent but the public debt guarantees increased enormously. The Fund wants Pakistan to introduce tax reform and must also limit tax exemptions, she added.
She emphasized that a recalibration of policies and reforms and increasing the revenue collection, ambitious tax policy reforms and broad base fiscal structural reforms are the need of the hour. In the energy and gas sector, a recalibration of the Circular Debt Management Plan (CDMP) which includes short- and medium-term measures like increasing revenue by aligning power tariff with cost recovery levels, reducing generation costs, streamlining fiscal impact, would be important steps. It could be achieved by targeted subsidy and governance issues like the Nepra act amendment, reducing TD losses and theft that are the major pillars of the programme.
Sanchez, while commenting on FATF compliance, said the progress so far and plan for the future is encouraging; however, the plan execution will need more rigorous measures.
Asked about the possibility of imposing ‘Corona Wealth Tax’ in the next fiscal budget, she added that it is the prerogative of the parliament for levying such kind of tax.