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  • IMF board approves $452.4 million as second tranche for Pakistan

    IMF board approves $452.4 million as second tranche for Pakistan

    KARACHI: International Monetary Fund (IMF) in its board meeting held on December 19, 2019 approved second tranche of about $452.4 million under its total $6 billion loan program for Pakistan.

    The Executive Board of the IMF on December 19, 2019 completed the first review of Pakistan’s economic performance under the Extended Fund Facility (EFF).

    The completion of the review will allow the authorities to draw SDR 328 million (about US$ 452.4 million), bringing total disbursements to SDR 1,044 million (about US$ 1,440 million), said a press release issued by the IMF.

    The Fund observed that Pakistan’s economic reform program is on track. Decisive policy implementation by the Pakistani authorities is helping to preserve economic stability aiming to put the economy on the path of sustainable growth.

    Transition to a market-determined exchange rate has been orderly; inflation has started to stabilize, mitigating the impact on the most vulnerable groups of the population.

    The Pakistani authorities remain committed to expanding the social safety nets, reducing poverty, and narrowing the gender gap, the IMF said.

    The Executive Board approved the 39-month, SDR 4,268 million (about $6 billion at the time of approval of the arrangement, or 210 percent of quota) EFF for Pakistan on July 3, 2019.

    Following the Executive Board’s decision, David Lipton, First Deputy Managing Director and Acting Chair, issued the following statement:

    “Pakistan’s program is on track and has started to bear fruit. However, risks remain elevated. Strong ownership and steadfast reform implementation are critical to entrench macroeconomic stability and support robust and balanced growth.

    “The authorities are committed to sustaining the progress on fiscal adjustment to place debt on a downward path. The planned reforms include strengthening tax revenue mobilization, including the elimination of tax exemptions and loopholes, and prudent expenditure policies. Preparations for a comprehensive tax policy reform should start early to ensure timely implementation. Enhanced social safety nets will help alleviate social costs and build support for reforms.

    “The flexible, market-determined exchange rate remains essential to cushion the economy against external shocks and rebuild reserve buffers. The current monetary stance is appropriately tight and should only be eased once disinflation is firmly entrenched. Strengthening the State Bank of Pakistan’s autonomy and governance will support these efforts.

    “Faster progress is needed to improve the AML/CFT framework, supported by technical assistance from the IMF and other capacity development providers. Swift adoption of all the necessary measures is needed to exit the FATF’s list of jurisdictions with AML/CFT deficiencies.

    “The authorities have adopted a comprehensive plan to address the accumulation of arrears in the power sector. Its full implementation is key to improve collection, reduce losses, and enhance governance. Timely and regular adjustment of energy tariffs will bring the sector in line with cost recovery.

    “Efforts are ongoing to further improve the business environment, strengthen governance, and foster private sector investment. Reform of the state-owned enterprise sector will help put Pakistan’s public finances on a sustainable path and have positive spillovers by leveling the playing field and improving the provision of services.”

  • IMF board to meet on December 19 to review Pakistan program

    IMF board to meet on December 19 to review Pakistan program

    KARACHI: The board of International Monetary Fund (IMF) will meet on December 19, 2019 to review Pakistan’s loan program and consider releasing next tranche.

    Gerry Rice, Director Communication, IMF in a press briefing on Thursday said that the IMF had a $6 billion program to support IMF’s economic reforms.

    “We had a mission there in November and the communication around that with a preliminary assessment of where we think Pakistan stands.”

    Which is that the program is on track and we reached a staff-level agreement on what we call the first review. You can read about that in more detail on our website.

    We had the preliminary assessment from staff after that mission to Pakistan and the board will meet to discuss that first review on Thursday, December 19th.

    What that indicates is that all prior actions and performance criteria under the program with Pakistan have been met. And that the financing assurances needed for the program to go forward are in place.

  • Pakistan’s exchange rate reflecting actual economic conditions: IMF

    Pakistan’s exchange rate reflecting actual economic conditions: IMF

    The International Monetary Fund (IMF) affirmed on Wednesday that Pakistan’s exchange rate now better reflects the actual economic conditions of the country.

    (more…)
  • FBR taking significant steps to improve tax administration: IMF

    FBR taking significant steps to improve tax administration: IMF

    ISLAMABAD: International Monetary Fund (IMF) on Friday said that Federal Board of Revenue (FBR) is undertaking significant steps to improve tax administration and its interface with taxpayers.

    An International Monetary Fund (IMF) mission, led by Ernesto Ramirez Rigo, visited Islamabad and Karachi during September 16–20, 2019 to take stock of economic developments since the start of the Extended Fund Facility (EFF) and discuss progress in the implementation of economic policies.

    A full mission for the first review under the EFF, is planned for late-October. At the conclusion of the staff visit, Ramirez Rigo issued the following statement:

    “While the authorities’ economic reform program is still in its early stages, there has been progress in some key areas. The transition to a market-determined exchange rate has started to deliver positive results on the external balance, exchange rate volatility has diminished, monetary policy is helping to control inflation, and the SBP has improved its foreign exchange buffers.

    “There has been a significant improvement in tax revenue collections, with taxes showing double-digit growth net of exporters refunds. Moreover, the FBR is undertaking significant steps to improve tax administration and its interface with taxpayers. Staff and the authorities have analyzed the worse than expected fiscal results of FY2018/19, which were partially the result of one-off factors and should not jeopardize the ambitious fiscal targets for FY2019/20. Importantly, the social spending measures in the program have been implemented.

    “The near-term macroeconomic outlook is broadly unchanged from the time of the program approval, with growth projected at 2.4 percent in FY2019/20, inflation expected to decline in the coming months, and the current account adjusting more rapidly than anticipated. However, domestic and international risks remain, and structural economic challenges persist. In this context, the authorities need to press ahead with their reform agenda.

    “In order to complete the first review, an IMF staff team plans to return to Pakistan in late-October to assess the end-September program targets.”

  • Reform program results encouraging, SBP tells IMF

    Reform program results encouraging, SBP tells IMF

    KARACHI: The State Bank of Pakistan (SBP) has informed the International Monetary Fund (IMF) that initial results from the reform program are encouraging.

    SBP Governor Dr. Reza Baqir told a delegation of IMF led by the Director Middle East and Central Asia Department, Jihad Azour on Thursday. He was accompanied by the IMF Mission Chief to Pakistan, Ernesto Ramirez Rigo; Resident Representative of IMF for Pakistan, Ms. Teresa Daban Sanchez; and Special Assistant to the Director of the IMF’s Communications Department, Olga Stankova. The delegation also met with senior management of the SBP.

    The SBP governor said that the earlier volatility in the exchange market and associated uncertainty had subsided and confidence was slowly improving.

    “Inflation had risen due to the economic imbalances accumulated from previous years but inflationary pressures were expected to recede in the second half of the current fiscal year.”

    Nevertheless, the governor emphasized that these were the early stages of the reform process and it was essential to sustain the reform momentum and to keep policies focused on securing stability and promoting sustainable and shared growth.

    He noted that Pakistan has embarked on its home-grown economic reform program and said that he looked forward to a continuing fruitful partnership with the IMF and other stakeholders in the international financial community to support this reform program.

    He observed that the transition to a market-based exchange rate system, building foreign exchange reserves, and bringing down inflation were key elements of the SBP’s reform program to restore financial stability and lay the foundations for sustainable and shared growth.

    In his discussions with the SBP, Azour shared his views on how central banks in the region were responding to the challenges being faced by them particularly with regard to capital flows, the role of technology, and the role of central banks in economic management, amongst other areas.

    Azour looked forward to a continuing partnership with the State Bank.

  • Pakistan not renegotiating IMF-program

    Pakistan not renegotiating IMF-program

    ISLAMABAD: Pakistan is not renegotiating IMF program and the country remains committed to implement the policies and reforms spelled out in the IMF-supported program, said a clarification issued on Friday.

    A certain news item published on 6th September 2019 has reported that the IMF is sending an SOS mission to Pakistan owing to the fiscal outcomes of FY 2018-2019. The news item has also claimed that programme may be renegotiated.

    It is clarified that both these assertions are completely incorrect are not based on actual ground realities.

    The upcoming IMF Mission is a staff level visit and coincides with the visit of the Director of the Middle East and Central Asia Department of the International Monetary Fund.

    The Director’s visit to Pakistan had been planned for September soon after the finalisation of the programme. As such, it is absolutely erroneous to construe that the IMF staff level mission is any kind of SOS mission as it had already been planned much earlier. The claim that the IMF programme is being renegotiated is equally misconceived.

    “The Government of Pakistan remains firmly committed to implement the policies and reforms spelled out in the IMF-supported program.”

    As indicated in the program documents, the IMF-supported program will be monitored and reviewed according to a calendar of quarterly reviews. The first one is scheduled to take place at some point in December.

    Our understanding is that as part of our technical work program, an IMF team will come on a routine Staff Visit in mid September 16-20. It must also be emphasised that after the initial adjustments, the economy is rapidly stabilising, in particular the external sector, and that the current fiscal year will yield some very positive economic outcomes.

  • Imran Khan discusses economic reforms with IMF chief

    Imran Khan discusses economic reforms with IMF chief

    WASHINGTON: Prime Minister Imran Khan on Sunday met David Lipton, Acting Managing Director of International Monetary Fund to discuss economic reform program.

    David Lipton, Acting Managing Director of the International Monetary Fund (IMF), issued the following statement today, following his meeting with the Prime Minister of Pakistan, Imran Khan:

    “I was pleased to meet Prime Minister Khan of Pakistan today in Washington, DC. We discussed recent economic developments and the implementation of the authority’s economic reform program supported by the IMF.

    “Their program aims to stabilize the economy, strengthen institutions, and thereby put Pakistan on a path of sustainable and balanced growth.

    “I highlighted the need to mobilize domestic tax revenue now and on into the future to provide reliably for needed social and development spending, while placing debt on a firm downward trend.

    “The IMF, together with other international partners, is working closely with the government of Pakistan to support the implementation of the authorities’ economic reform program.”

  • FBR not to reduce GST below 17 percent on petroleum products

    FBR not to reduce GST below 17 percent on petroleum products

    KARACHI: Federal Board of Revenue (FBR) to maintain general sales tax at 17 percent on all petroleum products in coming months as agreed by the Pakistani authorities with the International Monetary Fund (IMF).

    Pakistan has committed with the IMF for taking many steps for curbing powers of authorities in issuing statutory regulatory orders (SROs), eliminating exemptions and maintaining GST on petroleum products at 17 percent.

    Through SRO 700(I)/2019 dated June 30, 2019, the FBR notified sales tax at 17 percent on supply of all petroleum products for the month of July 2019. The petroleum products are included: petrol, high speed diesel, kerosene oil and light speed diesel oil.

    The Letter of Intent (LoI) presented by Pakistan for IMF loan program, the country assured the fund of eliminate the legal authorization for the executive to grant tax exemptions/concessions through Statutory Regulatory Orders (SROs) without prior National Assembly approval.

    “We understand that the use of SRO needs to be subject to greater scrutiny and limited discretion. To that end, we have adopted the necessary revisions and amendments to the various relevant tax ordinances to further limit or eliminate the use of SROs to genuine emergencies, in line with best international practices,” according to the LoI.

    The authorities have also assured the Fund of refraining from issuing any SRO reducing the GST rate below 17 percent on petroleum products.

    For Modernize the Public Finance Management Framework, Pakistan has adopted an organic budget law that will minimize variance in budget authorizations during the year, which shall also require ex-post parliamentary approval, restrict virements, expand the content of annual budget statements, define accounting standards, and provide the legal basis for a well-defined cash management system and establishment of a treasury single account (TSA).

    For Enforcing fiscal discipline, this will include strengthening the enforcement mechanism of the FRDLA through aligning the annual report presented by the Minister of Finance (MoF) to the National Assembly with the content and analysis prescribed in the Act. “Also, we will expand the capacity of the MoF for macro-fiscal work. Moreover, proper identification and monitoring of fiscal risks from SOEs, PPPs, IPPs and development projects will be strengthened through the establishment of a fiscal risk unit in the MoF, which will work in coordination with the PPP Authority.

    “We are aware that PPP projects, while bringing great benefits, can also be the source of important risks. Thus, we are committed to strengthening the PPP legal framework. To this end, we are conducting a legal analysis of the current system to determine if amendments to the PPP law are required or, alternatively, whether enacting secondary legislation is sufficient, drawing on the expertise of our development partners.

    “We will also make sure that proposed financial vehicles such as the Pakistan Infrastructure Bank is created in line with best international governance standards.”

    Pakistani authorities informed the Fund about creating a Treasury office that would conduct sound commitment controls and cash management, closely coordinating with the debt management unit.

    “We will strengthen the debt management office and will ensure greater coordination across the different relevant units. Elements of this strategy will include centralizing the issuance and management of public debt and developing a new Medium-Term Debt Strategy. To support our consolidation efforts and reduce our financing requirements, we will lengthen the maturity profile of public debt and will introduce new market instruments to widen the investors’ base, also transparently accounting for all borrowing and contingent liabilities.

    “We will ensure that any collateralized public external debt or external arrears would be properly accounted.”

  • Elimination of zero rating, other policy and administrative measures to generate Rs733.47 billion

    Elimination of zero rating, other policy and administrative measures to generate Rs733.47 billion

    KARACHI: Federal Board of Revenue (FBR) to generate additional revenue of Rs733.47 billion during current fiscal year after abolishing zero-rating of sales tax and other policy and administrative measures.

    Pakistan has outlined its strategy for enhancing revenue collection before the International Monetary Fund (IMF) through eliminating exemptions, distortion and other policy and administrative measures.

    These budgetary measures likely enhance tax to GDP ratio by 1.7 in the fiscal year 2019/2020.

    The FBR will generate additional revenue of Rs222.77 billion from measures taken through budget 2019/2020 in the sales tax, which included:

    Petroleum products levy increase to 15 PRs (and set as a floor) and

    GST rate at 17 percent (set as a floor)

    Cancel SRO # 480 and bring steel sector, edible oil and medium to large retailers to 17 percent GST regime

    Extend the list of products under the retail price taxation – Third Schedule (home appliances, paint.., currently under SRO # 480)

    Cancel SRO#1125 and bring exportable sectors to standard GST regime at 17 percent rate, with immediate cash refund for exported goods only

    Remove certain items from exemptions (packaged food), and apply GST tax at 17 percent.

    Increase GST on sugar from 8 percent to 17 percent

    Redefine the exemption available to Cottage Industry

    An additional amount of Rs90.114 billion estimated under Federal Excise Duty (FED) through following measures:

    0.2 Increase of FED on cigarettes and remove the third tier.

    Introduce FED on cigarettes coming from non tariff areas

    Increase/introduce FED on sugary drinks to 13 percent

    Increase FED on cement from 1.5 Rs per kg to 2 Rs

    Additional amount of Rs324.98 billion estimated through eliminating exemptions and other distortions in Income Tax, such as

    Personal Income Tax (PIT): lower the threshold to Rs400,00 and Rs600,000 for non-salaried and salaried individuals respectively, increase tax rates Increase in rate of minimum tax u/s 113 from 1.25 to 1.5 percent

    Extend the regime of higher withholding tax rates for non-filers

    Resume Telecom withholding rate

    Change in income tax regime of Services sector (banks and insurance companies)

    Abolish BMR credit incentives

    Increase the holding period liable to tax for capital gain tax on immovable properties and securities

    Taxation of gifts from unrelated person at standard PIT rate

    Aligning value of immovable properties with the market rates

    Reduction of number of withholdings and simplification of procedures

    Amortization of expenditure in BOT projects over useful life of the project instead of current 10 year amortization

    Long term lease hold right may be considered as purchase of property

    Taxation of formal agricultural sector within the scope of federal government

    Rationalization of tax credit available to Non-profit organizations (NPOs)

    An amount of Rs60 billion has been estimated to be generated through measures taken under Customs duty:

    Increase in Additional Customs Duty Rate on finished and luxury goods

    Withdrawal of exemption on import of LNG and subjected to 5 percent duty

    Revenue administrative measures to generate Rs 35.6 billion through following steps:

    Implement Track and Trace system for Tobacco Products

    Automated monitoring of GST and income at retail (point of sale)

    Changes in ADCIR mechanism

    Separation of audit & adjudication functions

    Making procedure for prosecution easier

    Enabling and strengthening FBR field formations

    Cleansing of databases and integration to enable effective data mining

    Enabling efficient enforcement through investment in FBR

    Infrastructure and process reengineering

    Taxpayer education and facilitation

  • Prize bonds, bearer instruments to be registered

    Prize bonds, bearer instruments to be registered

    KARACHI: Pakistani authorities have assured International Monetary Fund (IMF) of registering prize bonds and other bearer instruments to eliminate the use of these instruments in potential illegal activities and tax avoidance.

    The IMF issued Pakistan country report on Monday following successful $6 billion loan program.

    In order to make the program successful the Pakistani authorities had assured the fund of strengthening governance and the control of corruption.

    The priorities include:

    Strengthening the effectiveness of anticorruption institutions. A national committee has been established to implement the recommendations from the UNCAC 2017 report.

    A task force will review the institutional framework of the anticorruption institutions to enhance their independence and effectiveness in investigating and prosecuting corruption cases.

    A study will be conducted on establishing a dedicated AML unit in the Federal Investigation Agency (FIA). Upgrading the financial investigation capacities of law enforcement agencies will be also prioritized.

    Moreover, the authorities are pursuing agreements on information exchange with foreign countries to complement efforts to recover unlawful assets.

    An Asset Recovery Unit in the Prime Minister’s Office is cooperating with the FBR’s International Taxation Unit in identifying assets abroad owned by Pakistani residents, in line with the OECD Convention on Mutual Administrative Assistance on Tax Matters.

    Advancing anti-corruption efforts through the enhanced used of AML tools, including by (i) ensuring that banks and other reporting institutions improve their capacities to identify politically exposed persons and apply enhanced due diligence measures and (ii) providing adequate resources to the Financial Monitoring Unit to improve the dissemination of financial intelligence that can be used to support corruption investigations.

    Moreover, asset declarations of high-level public officials will be comprehensive in scope (i.e., assets beneficial owned or located abroad), filed with a central federal agency, electronically searchable, and appropriately verified.

    “Registering prize bonds and other bearer instruments to eliminate their use in potential illegal activities/tax avoidance,” the report said.