ISLAMABAD: Pakistan has officially submitted its Memorandum of Economic and Financial Policies (MEFP) plan to the International Monetary Fund (IMF), according to Finance Minister Asad Umar.
The MEFP envisions macroeconomic stabilization translating into a growth strategy over the forthcoming three years, reports Dawn.
Finance Minister Asad Umar said the MEFP has been submitted to the IMF and is under deliberation, however, he refused to provide further details since the IMF may have something to add and come back to us.
According to sources, the government under the MEFP plan is mulling a fiscal adjustment of around 2.5% of GDP in next three years, which will decrease the fiscal deficit to about 4% at end of the 36-month programme.
However, this time the programme execution would be front-loaded against relatively balanced execution schedule of the previous programme.
As per an official, this time most of the pain to be inflicted would be swift this time in the shape of revenue measures and energy pricing.
But in real methodology, the adjustment would require over Rs1 trillion of additional fiscal space with a composition of increased revenues and decreased expenditures.
The MEFP envisions to gradually reduce existing addition of Rs30 billion a month in power sector circular debt and decrease it to zero in the first two years of the programme.
Also, the MEFP wants the losses in public-sector entities to be addressed.
And the government is committing a series of taxation measures to raise revenues, whilst the IMF has asked new areas like real estate, agriculture and others to be added to the tax net for resolving a major issue of low tax to GDP ratio.
Sources stated an IMF delegation is expected to visit Islamabad again after Christmas holidays for finalizing the bailout package, so it could be submitted to the Fund execution board for approval.
However, officials stated that contrary to media reports, the IMF had never recommended specific tax measures like raise in GST, income tax etc.
It pinpointed the problem of decreasing budget deficit to around 3.5% of GDP in three years, contending that the country’s tax to GDP ratio was the lowest among its peers.
It termed the existing tax system as regressive with minimal contribution being received from direct taxes.
The officials shared the IMF’s Resident Representative Teresa Daban Sanchez may be in touch electronically with the government representatives and IMF high-ups even during forthcoming holidays, although fund team working on MEFP wouldn’t be available.
They added the IMF and Pakistani authorities were in consensus that tightening the fiscal and monetary policies, expenditure as a percentage of GDP needs to be raised for social safety nets to safeguard poor people, as the tough fiscal adjustment comes into effect.
Furthermore, the officials said the IMF had explained authorities about the changed geopolitical situation they would have to go through and provide workable fiscal and monetary plans which could be recommended by the IMF mission and the team on merit before the executive board for a go-ahead.