Part of ‘prior actions’ required to resume IMF loan facility, country’s economy at risk if legislation not approved
The Pakistan Tehreek-e-Insaf (PTI)-led government is mulling tabling in Parliament a mini budget amidst concerns among lawmakers that the price hikes it will cause will further enflame anger among citizens already burdened by rampant inflation.
According to sources within the government, the Finance Ministry has decided to consult with Prime Minister Imran Khan to devise a new strategy to introduce the legislation mandated by the International Monetary Fund (IMF) to resume a suspended $6 billion loan facility. They claimed the government was attempting to convince the IMF to allow it to introduce the mini-budget through a presidential ordinance—a common practice in the incumbent government—but the global lender was demanding that it be approved by Parliament to prevent it from being reversed later.
The two bills that the IMF requires the government to legislate prior to resuming the stalled loan facility are the Tax Laws (Fourth) Amendment Bill and the State Bank of Pakistan Autonomy Bill. Both have faced strong opposition, raising fears that the government might not be able to get them approved through Parliament.
The Tax Laws (Fourth) Amendment Bill envisions the withdrawal of GST exemptions on hundreds of commodities in a bid to boost tax revenue by an estimated Rs. 350 billion. The government fears that imposing these new taxes at this stage—when inflation in November was reported at 11.53%—might provoke stringent public backlash. The government, say sources, also fears that the PTI’s losses in local government elections in Khyber-Pakhtunkhwa were motivated by public anger over inflation and this could worsen further in future polls. The second phase of the Khyber-Pakhtunkhwa local body polls is due for Jan. 16, 2022.
The SBP Autonomy Bill, meanwhile, would grant the central bank independence in all matters of monetary policy, the exchange rate and recruitments. The new law would also remove a monetary and fiscal policy board that had included the finance secretary, replacing it with a liaison between the finance minister and the SBP governor. The government would retain the authority to appoint the SBP governor and board of directors, but they would have the authority to appoint deputy governors. The finance ministry would have no role in approving foreign visits of deputy governors and other senior officials.
The PTI’s plans for the legislations are also up against a deadline: the IMF’s Executive Board is set to meet on Jan. 12, and if the government has not completed all required prior actions, the loan facility would not be resumed. In addition to the withdrawal of tax exemptions and autonomy for the central bank, the government must also reduce the Public Sector Development Program by Rs. 200 billion, bringing it down to Rs. 700 billion. It has already started to increase the petroleum levy to collect an additional Rs. 356 billion in revenue, and has made public an audit of all COVID-related expenditures.
Despite the opposition, though, the government has little choice but to remain under the IMF’s $6 billion Extended Fund Facility or risk economic collapse. The confusion over the status of the program has roiled the Pakistan Stock Exchange and the rupee’s exchange rate for several months. Additionally, a $3 billion “loan” from Saudi Arabia that has been deposited with Pakistan to boost its foreign exchange reserves is reliant on Islamabad remaining under the IMF program. Reportedly, the “confidential” terms of agreement allow the Gulf kingdom to withdraw the sum, within 72 hours, if Islamabad abandons the IMF program.