News Column

IMF asks Pakistan to do more to broaden tax base

June 29, 2014



With the approval of fourth tranche worth $555.9 million, the International Monetary Fund (IMF) has asked Pakistan to increase the tax-to-GDP ratio by broadening the tax base, saying continued efforts to safeguard the fragile economic recovery are needed.

“Macroeconomic conditions are improving, but downside risks remain. The government has taken measures to address short-term macroeconomic vulnerabilities and advance structural reforms, including the energy sector reforms, but continued efforts to safeguard the fragile economic recovery are needed”, said David Lipton, First Deputy Managing Director and Acting Chair IMF, in a statement.

“Fiscal consolidation remains broadly on track, but efforts to broaden the tax base and increase tax-to-GDP ratio should be accelerated. Eliminating tax concessions and exemptions will not only improve tax collections, but will also produce a fairer and simpler tax system and will improve the investment climate. Increasing the size and coverage of targeted cash transfers to protect the most vulnerable segments of the population is welcome”, he said.

The IMF statement issued after its Executive Board on Friday has approved fourth tranche worth of $555.9 million after completing third review of Pakistan’s economic performance under a three-year programme supported by an arrangement under the Extended Fund Facility (EFF). In completing the third review, the Board also approved the authorities’ request for a waiver of on-observance of the end-March performance criterion on the ceiling of the net domestic assets of the State Bank of Pakistan, as well as modifications to adjust the end-June performance criterion on the net international reserves target and the end-June fiscal deficit target.

“Efforts to boost foreign reserves are bearing fruit and should continue, including through spot purchases, greater exchange rate flexibility, and a prudent monetary policy. The policy interest rate should be set so as to bring inflation down over time. Revised legislation to enhance central bank independence will be an important component of improved monetary policy framework, complemented by greater transparency in monetary policy decision making and enhanced central bank internal controls”, said the statement.

“The banking sector remains financially stable and profitable. This stability will be further enhanced by ensuring compliance of the few banks that fall below minimum capital adequacy requirements, addressing the high level of non-performing loans (NPLs), and improving the Anti-Money Laundering/Combating the Fighting Terrorism (AML/CFT) regime”, said David Lipton.

“Continued energy policy reforms are welcome. Addressing the administrative constraints on the power sector’s regulatory framework and improving the operations and collections of energy companies are important. Efforts to reform public sector enterprises should continue. Plans for trade policy and business climate reforms are being developed, but firmer actions are needed to boost economic growth over time.”

Sources in Finance Ministry informed The Nation that Pakistan would receive fourth tranche worth of $555.9 million in the start of upcoming week. The upcoming IMF installment would help in building foreign exchange reserves and would take them to near $15 billion. Pakistan’s foreign exchange reserves are currently $14.263 billion wherein State Bank of Pakistan’s reserves are $9.19 billion and $5.074 billion of commercial banks.


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Source: Nation (Pakistan)


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