• Finance ministry insists tax exemptions announced in budget are ‘growth triggers’
• Dar says govt tried its best to complete ninth review, but ‘it takes two to tango’
• $2.3bn Chinese loans to be rolled over before end of June
ISLAMABAD: Tax exemptions in next year’s budget are “triggers” for economic growth, the government said in response to International Monetary Fund’s concerns, but insisted that it was not rigid about its spending plans and was “keenly engaged with the IMF to reach an amicable solution”.
The government also announced that about $2.3 billion in Chinese loans would be rolled over before the ongoing fiscal year ends on June 30.
Apart from the finance ministry’s detailed statement to counter objections raised by IMF’s resident representative in Islamabad on “specific issues” of the budget, Finance Minister Ishaq Dar disclosed before the National Assembly’s Standing Committee on Finance the upcoming three transactions with China over the next 14 days. He also continued criticising the IMF staff amid a stalled loan instalment.
However, while the ministry’s statement talked about reaching “an amicable solution” with the Fund, Mr Dar said that “we tried our best to complete the ninth review, but it takes two to tango”.
‘Dar says country not insolvent’
He told the National Assembly’s committee on finance that Pakistan and China have reached an understanding over the repayment and refinancing of $1.3bn loans and $1bn State Administration of Foreign Exchange (SAFE) deposit before the close of the current fiscal year.
He said Pakistan would get back $1bn within 72 hours that it repaid ahead of maturity to China early this week. The State Bank of Pakistan will receive this amount in its account on Friday or on coming Monday, he said in the afternoon. In the night, the SBP confirmed to have received $1bn.
He said that in normal conditions, premature repayments entailed a penalty, but China would not charge this.
The finance minister said the premature payment to Beijing was made as part of the debt management strategy to secure its refinancing within this fiscal year, adding that this refinancing would not have been possible this year in case of repayment to China on the due date falling on June 29.
He said a similar treatment had been agreed upon with China Development Bank for its $300 million loan maturing on June 26 that would be refinanced before June 30th. In a similar pattern, $1bn SAFE deposit would also be rolled over before June 30.
A day earlier, Mr Dar had told a senate panel that China had realised the politics behind the unnecessary delay in the completion of the IMF review and its commercial banks had agreed to roll over loans to Pakistan.
He reiterated this before the National Assembly’s panel on Friday, saying Pakistan had been subjected to strange politics and he was at a loss to understand what they wanted and why. “This has not happened before and I fail to understand but I also have to keep in mind my country’s interests,” he said.
He stressed that the country was not insolvent, as it possessed trillions of worth of dozens of assets, although it faced only liquidity challenges.
“One gas pipeline asset is worth $50bn which was the largest in the world” while $6 trillion could be secured from the Reko Diq gold and copper mining project.
‘Firmly committed’ to loan programme
Meanwhile, the finance ministry in its written statement said the government was “firmly committed” to the Fund programme and negotiations were ongoing but since IMF Resident Representative Esther Perez had raised “specific issues in the press”, it wanted its position to be clarified.
Giving context, it said the ninth IMF review was conducted in early February and the government “completed all technical issues at a fast pace”.
It said the only outstanding issue was of external financing, which the government understood was also amicably resolved in the prime minister’s telephonic call of May 19 with the IMF chief.
It said though the latest budget was never a part of the ninth review, however in line with the premier’s commitment to the IMF chief, the finance ministry shared the budget numbers with the IMF mission and remained continuously engaged with them even on the budget.
On the specific issues, including broadening of tax base, tax exemptions, amnesty scheme and BISP allocations raised by Ms Perez, the ministry said the Federal Board of Revenue had added 1,161,000 new taxpayers — i.e. 26.38 per cent — to its tax base in the last 11 months.
It said the 0.6pc advance adjustable withholding tax on cash withdrawals over Rs50,000 was another big step in this direction towards broadening of the base.
The tax exemptions announced in the budget were “triggers” of growth in the real sectors of economy. This is the sustainable path to provide employment and livelihood to the common citizen. In any case, the amount was fairly small, it said.
On BISP allocation, the ministry said the pro-poor initiatives in the budget were not limited to BISP beneficiaries whose budget had been increased from Rs400bn to 450bn. There are millions of vulnerable people above the poverty line and the budget provided Rs35bn for targeted subsidies on five main items of food consumption through the Utility Stores Corporation for families up to a PMT score of 40. This facility is also available for BISP beneficiaries.
As for the “amnesty”, the only change is to “dollarise” the value of an existing provision of the Income Tax Ordinance.
“This facility, which has always been there, is available under section 111(4) of the I.T. Ordinance. The cap of Rs10 million (approx. $ 100,000 equivalent) was introduced in FY2016. The cap set in FY2016 is being resolved in terms of Rupee equivalence of $100,000,” it said.
The statement said the coalition government had already taken many difficult and politically costly decisions in this context. “We are not doctrinaire about any element of the Budget FY24 and are keenly engaged with the IMF to reach an amicable solution,” the ministry said.
Published in Dawn, June 17th, 2023
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