IMF dis­sat­is­fied with Pak­istan fis­cal re­forms

The Pak Banker - - FRONT PAGE -

The In­ter­na­tional Mon­e­tary Fund (IMF) has ex­pressed dis­sat­is­fac­tion over Pak­istan's per­for­mance in re­form­ing the fis­cal fed­er­al­ism through the Na­tional Fi­nance Com­mis­sion (NFC).

The 7th NFC award no­ti­fied in 2009 trans­ferred sub­stan­tial, from 50pc to 57.5pc, fis­cal re­sources from the cen­tre to the provinces. This was based on the prom­ise that provinces would bring ad­di­tional ar­eas like agri­cul­ture and real es­tate un­der the ef­fec­tive tax net so as to in­crease tax-to-GDP ra­tio from less than 10pc to 15pc by June 30, 2015. "Lit­tle progress has been made in re­form­ing the fis­cal fed­er­al­ism sys­tem," said the IMF in its lat­est re­port un­der com­pul­sory Ar­ti­cle IV con­sul­ta­tion. The fund said the coun­try's over­all fis­cal pol­icy had achieved sub­stan­tial con­sol­i­da­tion as fis­cal deficit ex­clud­ing grants de­clined by 3.1 per­cent­age points of GDP from 8.5pc in 2012-13 to 5.4pc last year. In the mean­time, de­spite a sus­tained im­prove­ment over the past three years, tax rev­enue is still very low at 11pc of GDP and widen­ing of the tax net re­mains a chal­lenge.

The IMF said the 7th NFC award granted 57.5pc of rev­enues to the provinces. "And al­though some ex­pen­di­ture re­spon­si­bil­i­ties have been de­volved as well, the ex­ist­ing fis­cal fed­er­al­ism sys­tem re­mains un­bal­anced and tax rev­enue col­lec­tion un­der pro­vin­cial au­thor­ity, GST on ser­vices as well as agri­cul­ture and prop­erty taxes, is very low". The fund said go­ing for­ward it will be im­por­tant for the govern­ment to seek a bet­ter bal­ance in the de­mar­ca­tion of rev­enue and ex­pen­di­ture re­spon­si­bil­i­ties and en­cour­age im­prove­ment in pro­vin­cial rev­enue col­lec­tion. There­fore, the IMF "urged the au­thor­i­ties to re­duce frag­men­ta­tion in tax ad­min­is­tra­tion and im­prove co­op­er­a­tion with pro­vin­cial tax au­thor­i­ties".

This was de­spite Fi­nance Min­is­ter Ishaq Dar's ex­pla­na­tions that the govern­ment "would con­tinue to man­age bud­getary spend­ing pru­dently and strive to achieve the con­tri­bu­tion of provinces to fis­cal con­sol­i­da­tion".

To this end, ad­di­tional bud­getary spend­ing as re­sult of the re­clas­si­fi­ca­tion of some non-plan loans (0.1pc of GDP) will be made through re­al­lo­ca­tion of ex­ist­ing cap­i­tal ex­pen­di­ture plans, in­clud­ing at the pro­vin­cial level. The ad­di­tional bud­getary spend­ing re­lated to the new agri­cul­tural spend­ing pack­age (0.1pc of GDP) will be ab­sorbed within re­cur­rent spend­ing.

"To as­sure achieve­ment of our fis­cal tar­gets in 2015-16 and be­yond, the pro­vin­cial fi­nance sec­re­taries have agreed in writ­ing to in­crease pro­vin­cial bud­get sur­pluses con­sis­tent with the pro­gramme," the fi­nance min­is­ter said and ex­plained how this would be done.

To this end, to­tal pro­vin­cial spend­ing will be main­tained at 6.5pc of GDP in 2015-16, with to­tal pro­vin­cial own tax and non-tax rev­enues stand­ing at 1.1pc of GDP. "We are in­ten­si­fy­ing our in­ter­ac­tion with pro­vin­cial au­thor­i­ties at a higher level to ar­rive at a mech­a­nism to strengthen the provinces' fis­cal com­mit­ment for 2015-16," he said.

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