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Tag: International Monetary Fund

  • IMF starts distributing largest ever $650 billion allocation

    IMF starts distributing largest ever $650 billion allocation

    Washington, DC: International Monetary Fund (IMF) on Monday started distribution of the largest ever allocation of $650 billion to provide additional liquidity to the global economic system.

    Ms. Kristalina Georgieva, Managing Director of the IMF made the following statement on Monday:

    “The largest allocation of Special Drawing Rights (SDRs) in history—about US$650 billion—comes into effect today. The allocation is a significant shot in the arm for the world and, if used wisely, a unique opportunity to combat this unprecedented crisis.

    “The SDR allocation will provide additional liquidity to the global economic system – supplementing countries’ foreign exchange reserves and reducing their reliance on more expensive domestic or external debt. Countries can use the space provided by the SDR allocation to support their economies and step up their fight against the crisis.

    “SDRs are being distributed to countries in proportion to their quota shares in the IMF. This means about US$275 billion is going to emerging and developing countries, of which low-income countries will receive about US$21 billion – equivalent to as much as 6 percent of GDP in some cases.

    “SDRs are a precious resource and the decision on how best to use them rests with our member countries. For SDRs to be deployed for the maximum benefit of member countries and the global economy, those decisions should be prudent and well-informed.

    “To support countries, and help ensure transparency and accountability, the IMF is providing a framework for assessing the macroeconomic implications of the new allocation, its statistical treatment and governance, and how it might affect debt sustainability. The IMF will also provide regular updates on all SDR holdings, transactions, and trading – including a follow-up report on the use of SDRs in two years’ time.

    “To magnify the benefits of this allocation, the IMF is encouraging voluntary channeling of some SDRs from countries with strong external positions to countries most in need. Over the past 16 months, some members have already pledged to lend US$24bn, including US$15 billion from their existing SDRs, to the IMF’s Poverty Reduction and Growth Trust, which provides concessional loans to low-income countries. This is just a start, and the IMF will continue to work with our members to build on this effort.

    “The IMF is also engaging with its member countries on the possibility of a new Resilience and Sustainability Trust, which could use channeled SDRs to help the most vulnerable countries with structural transformation, including confronting climate-related challenges. Another possibility could be to channel SDRs to support lending by multilateral development banks.

    “This SDR allocation is a critical component of the IMF’s broader effort to support countries through the pandemic, which includes: US$117 billion in new financing for 85 countries; debt service relief for 29 low-income countries; and policy advice and capacity development support to over 175 countries to help secure a strong and more sustainable recovery.”

    IMF projects Pakistan’s GDP growth at 5pc in FY24
  • Rupee makes 42 paisas gain against dollar

    Rupee makes 42 paisas gain against dollar

    KARACHI: The Pak Rupee (PKR) made a gain of 42 paisas against the dollar on Wednesday after witnessing deterioration in first two days of the week.

    The rupee ended Rs163.47 to the dollar from previous day’s closing of Rs163.89 in the interbank foreign exchange market.

    The local currency lost Rs1.46 against the dollar during first two days of the current week. So far the rupee lost around 5.93 against the dollar from the closing of June 30, 2021.

    Currency experts said that the rupee gained on reports of funds allocations of $650 billion by the International Monetary Fund (IMF) to boost global economy. Pakistan will get around $2.8 billion out of this allocation.

    The experts said that encouraging inflows of exports and workers’ remittances would help the rupee to make gain in coming days.

    However, they said the payment against external debt may put pressure on the local currency.

  • FBR projects Rs5,700bn tax collection for next fiscal year; IMF says ‘do more’

    FBR projects Rs5,700bn tax collection for next fiscal year; IMF says ‘do more’

    ISLAMABAD: The Federal Board of Revenue (FBR) has estimated Rs5,700 billion as a net revenue collection for the next fiscal year 2021/2022, around Rs263 billion less then projection of International Monetary Fund (IMF).

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  • Parliament to approve amendments to SBP Act by September

    Parliament to approve amendments to SBP Act by September

    KARACHI: The National Assembly likely to adopt amendments to State Bank of Pakistan (SBP) Act by September 2021.

    This was assured by the Pakistani authorities to International Monetary Fund (IMF).

    The ministry of finance submitted the amendments to parliament in March 2021 and the authorities expect adoption by parliament by end-September 2021.

    The authorities assured the IMF about making good progress toward strengthening the SBP’s autonomy, governance, and mandate.

    The authorities said: “We have worked closely with IMF staff in the preparation of amendments to the SBP Act to address existing gaps.”

    The amendments aim to:

    (i) establish domestic price stability as the primary objective, with financial stability and growth as secondary objectives;

    (ii) clearly define the SBP’s functions to help achieve these objectives;

    (iii) strengthen the SBP’s financial autonomy, including through statutory mechanisms for sufficient recapitalization and profit retention; (iv) prohibit the extension of direct credits or guarantees to the general government;

    (v) establish the statutory underpinnings for audits;

    (vi) secure stronger protection of the personal autonomy of senior officials;

    (vii) further strengthen collegial decision making at the executive management level;

    (viii) provide stronger oversight by the Board; and

    (ix) improve SBP’s accountability regarding the conduct of its monetary policy and the achievement of its objectives.

  • Harmonization of sales tax to complete by June

    Harmonization of sales tax to complete by June

    ISLAMABAD: Harmonization of sales tax between federal and provincial tax authorities may be completed by end-June 2021, officials in the Federal Board of Revenue (FBR) said on Wednesday.

    The FBR said that the authorities were in the process of harmonizing the service sales tax across provincial jurisdictions, with support from the World Bank, which will be completed by end-June 2021.

    The officials said that the government had shown commitment to the International Monetary Fund (IMF) of taking several measures including broadening of sales tax base.

    The government has committed to reforms the General Sales Tax (GST) system, underpinned by a unified tax base and within the confines of the current constitution.

    The authorities will: (i) eliminate all zero-rated goods (Fifth Schedule), except on export and capital machinery goods and move them to the standard sales tax rate; (ii) remove reduced rates under the Eight Schedule and bring all those goods to the standard sales tax rate; (iii) eliminate exemptions (Sixth Schedule) excluding a small subset of goods (i.e., basic food, medicines, live animals for human consumption, education and health-related goods) and bring all others to the standard rate; and (iv) remove the Ninth Schedule to replace a specific tax rate for cell phones with the standard rate.

    These reforms are expected to yield an estimated 0.7 percent of GDP on an annualized basis.

    Moreover, the authorities are also in the process of harmonizing the service sales tax across provincial jurisdictions, with support from the World Bank, expected to be completed by end-June 2021.

  • Salary income tax brackets to be reduced to five

    Salary income tax brackets to be reduced to five

    KARACHI: The government is working on reducing the brackets of salary income tax to five from existing 11 besides reducing the income slabs, according to country report on Pakistan issued by International Monetary Fund (IMF) on Thursday.

    Pakistan has assured the IMF to take major initiatives in the upcoming budget 2021/2022. According to the report the Pakistani authorities assured the IMF that in the next step of tax policy reform efforts and to further support fiscal objectives, the government will introduce both a general sales tax (GST) and a personal income tax (PIT) reform with the FY 2022 budget, yielding an estimated 1.1 percent of GDP.

    The government may introduce change the existing tax rate structure by reducing the number of rates and income tax brackets from eleven to five and decreasing the size of the income slabs, with a view to simplifying the system and increasing progressivity.

    The authorities further pledged to reduce tax credits and allowances by 50 percent (except for Zakat and those provided for disabled and senior citizens).

    Besides, they also pledged to introduce a special tax procedure for very small taxpayers, aimed at preventing further tax base erosion and facilitating the formalization of the economy.

    The authorities may adopt a long-term strategy to reduce labor informality and to bring additional taxpayers into the PIT net. This reform is expected to yield 0.4 percent of GDP on an annualized basis.

    For the broadening and harmonizing the General Sales Tax (GST) base, the authorities assured the IMF through its Letter of Intent (LoI) signed by the finance minister and governor State Bank of Pakistan (SBP) that the government will advance the reforms to our GST system, underpinned by a unified tax base and within the confines of the current constitution.

    The authorities pledged the following:

    (i)  to eliminate all zero-rated goods (Fifth Schedule), except on export and capital machinery goods and move them to the standard sales tax rate;

    (ii) remove reduced rates under the Eight Schedule and bring all those goods to the standard sales tax rate;

    (iii) eliminate exemptions (Sixth Schedule) excluding a small subset of goods (i.e., basic food, medicines, live animals for human consumption, education and health-related goods) and bring all others to the standard rate; and

    (iv) remove the Ninth Schedule to replace a specific tax rate for cell phones with the standard rate. These reforms are expected to yield an estimated 0.7 percent of GDP on an annualized basis.

    Moreover, the government is also in the process of harmonizing the service sales tax across provincial jurisdictions, with support from the World Bank, expected to be completed by end-June 2021.

  • IMF projects Pakistan’s GDP growth at 5pc in FY24

    IMF projects Pakistan’s GDP growth at 5pc in FY24

    KARACHI: International Monetary Fund (IMF) has projected that Pakistan’s GDP growth may grow five percent in 2023/2024 from projected growth of 1.5 percent in the current fiscal year.

    The IMF issued country report on Pakistan’s economy on Thursday.

    According to the IMF real GDP growth is projected to remain subdued at 1.5 percent in FY 2021—consistent with the forecasted course of the pandemic and vaccinations, and global recovery in the WEO baseline— and recover to 4 percent in FY 2022 as the vaccine rollout, confidence, and investment take hold.

    Growth is expected to gradually improve, but only reach its medium-term potential of 5 percent in FY 2024, later than envisioned in the first EFF review, due to the large shock and the need for continued fiscal adjustment, which is expected to offset some of impact of the stronger private sector growth on the overall economy.

    Average CPI inflation is expected to average 8.7 percent in FY 2021 and 8 in FY 2022, as continued high food prices and energy price adjustments outweigh soft international oil prices and weak domestic demand.

    The current account deficit is forecast to widen to 1.5 percent of GDP in FY 2021, as a result of the recovery and it should continue to gradually widen toward 3 percent over the medium term with stronger imports triggered by revived domestic demand and exports.

    However, the market determined exchange rate, together with adequate monetary policy, would help strengthen reserve cover to over 3½ months of imports by FY 2025.

    — Debt is projected to enter a downward path with narrower twin deficits: public debt is forecast to fall toward 70 percent by FY 2026 and total external debt below 40 percent of GDP by FY 2024.

    Substantial risks cloud the outlook, amplified by the Covid-19 pandemic.

    These fall under four broad groups: First, high uncertainty—notably around the global recovery and thus the prospects for growth, trade, and remittances—arises from the second wave of the pandemic and emergence of new strains worldwide.

    These could reverse the current course of the pandemic in Pakistan and require additional mitigation efforts, especially if domestic vaccination efforts were to stall.

    Second, policy slippages remain a risk, amplified by weak implementation capacity and influential vested interests. This particularly affects the fiscal area and thus debt sustainability, including the risk with provinces under-delivering on their commitments to budget parameters.

    Third, failures to meet program objectives, including those related to the authorities’ AML/CFT action plan with the Financial Action Task Force (FATF), could hamper external financing and investment.

    Fourth, geopolitical tensions could increase oil prices and an adverse shift in investor sentiment affect external financing. At the same time, an upside for growth and program objectives arises from the political calendar: with the senate election having taken place in March 2021, there is a window to accelerate reforms until the general elections scheduled for August 2023.

    The Debt Sustainability Analysis confirms that public debt remains sustainable with strong policies, but also points to risks from policy slippages and contingent liabilities.

  • Pakistan receives $498.7 million IMF tranche

    Pakistan receives $498.7 million IMF tranche

    KARACHI: Pakistan has successfully received a tranche of $498.7 million under the Extended Fund Facility (EFF) from the International Monetary Fund (IMF), as confirmed by the State Bank of Pakistan (SBP) on Tuesday.

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  • IMF relaxes requirements on Pakistan’s FY 2016 misreporting

    IMF relaxes requirements on Pakistan’s FY 2016 misreporting

    Washington, DC: International Monetary Fund (IMF) on Wednesday said that the Pakistani authorities have shown strong commitment in providing accurate data in future so the Executive Board of the IMF decided not to require further remedial action in connection with the breach obligations.

    A statement issued by the IMF said that the Executive Board of the International Monetary Fund (IMF) approved a 39-month Extended Arrangement under the Extended Fund Facility (EFF) for Pakistan in the amount of SDR 4,268 billion (about US$6 billion), equivalent to 210 percent of quota, on July 3, 2019.

    The first review under the arrangement was completed by the Executive Board on December 19, 2019, based upon, inter alia, the reported observance of the quantitative performance criteria (PC) at end-September 2019, including the amount of government guarantees. Upon completion of the first review under the EFF, Pakistan made a purchase equivalent to SDR 328 million (about US$452.4 million).

    Subsequently, new information that came to the authorities’ attention, and which was shared with Fund staff, has revealed that the data on government guarantees dating back to FY 2016 was reported inaccurately.

    The revised data indicates a nonobservance of the PC on government guarantees at end-September 2019 by a margin of Rs357 billion (about 0.9 percent of GDP), which resulted in a non-complying purchase and a breach of obligations under Article VIII, Section 5 of the IMF Articles of Agreement.

    The authorities previously reported that the PC had been met with a margin of PRs 55 billion (0.1 percent of GDP) at end-September 2019. The statistical revision only had a small impact on public debt.

    The authorities have taken strong corrective actions to address institutional and technical short-comings that gave rise to the inaccurate information, including:

    (i) creating a working group to reconcile and cross-check guarantees and debt data;

    (ii) announcing additional functions for the Debt Policy Coordination Office (DPCO), including to act as custodian of all guarantees issued by the federal government; and

    (iii) publishing a semi-annual debt bulletin that consolidates key debt statistics. Beyond these actions, the authorities have committed to include a list of all new guarantees expected to be issued in the FY 2022 budget submitted to Parliament.

    At the conclusion of the meeting, Deputy Managing Director Antoinette Sayeh and Acting Chair, stated:

    “The Executive Board of the International Monetary Fund (IMF) reviewed Pakistan’s remedial actions and data revisions linked to a noncomplying purchase under the Extended Arrangement under the Extended Fund Facility as well as a breach of obligations under Article VIII, Section 5. The non-complying purchase arose as a result of a lack of inter-agency coordination in the compilation of government guarantees provided by the federal government to state-owned enterprises that contributed to incorrect estimates of government guarantees starting as far back as FY 2016.

    In view of the strong and proactive commitment by Pakistan to provide timely and accurate data to the IMF in the future, the Executive Board decided not to require further remedial action in connection with the breach of obligations under Article VIII, Section 5.

    As the authorities have taken appropriate corrective measures since the purchase in December 2019, the Executive Board also granted a waiver for the nonobservance of the quantitative performance criterion.”

  • IMF board allows $500 million disbursement for Pakistan

    IMF board allows $500 million disbursement for Pakistan

    Washington, DC: The Executive Board of the International Monetary Fund (IMF) on Wednesday allowed disbursement of $500 million under Extended Fund Facility (EFF) for Pakistan.

    The IMF board completed the second through fifth reviews of the Extended Arrangement under the EFF for Pakistan. The board’s decision allows for an immediate disbursement of SDR 350 million (about US$500 million), bringing total purchases for budget support under the arrangement to about US$2 billion, said a statement issued by the IMF.

    Pakistan’s 39-month EFF arrangement was approved by the Executive Board on July 3, 2019 about $6 billion at the time of approval of the arrangement, or 210 percent of quota.

    The program aims to support Pakistan’s policies to help the economy and save lives and livelihoods amid the still unfolding Covid-19 pandemic, ensure macroeconomic and debt sustainability, and advance structural reforms to lay the foundations for strong, job-rich, and long-lasting growth that benefits all Pakistanis.

    Following the Executive Board discussion on Pakistan, Ms. Antoinette Sayeh, Deputy Managing Director and Acting Chair, issued the following statement:

    “The Pakistani authorities have continued to make satisfactory progress under the Fund-supported program, which has been an important policy anchor during an unprecedented period. While the Covid-19 pandemic continues to pose challenges, the authorities’ policies have been critical in supporting the economy and saving lives and livelihoods. The authorities have also continued to advance their reform agenda in key areas, including on consolidating central bank autonomy, reforming corporate taxation, bolstering management of state-owned enterprises, and improving cost recovery and regulation in the power sector.

    “Reflecting the challenges from the unfolding pandemic and the authorities’ commitment to the medium-term objectives under the EFF, the policy mix has been recalibrated to strike an appropriate balance between supporting the economy, ensuring debt sustainability, and advancing structural reforms while maintaining social cohesion. Strong ownership and steadfast reform implementation remain crucial in light of unusually high uncertainty and risks.

    “Fiscal performance in the first half of FY 2021 was prudent, providing targeted support and maintaining stability. Going forward, further sustained efforts, including broadening the revenue base carefully managing spending and securing provincial contributions, will help achieve a lasting improvement in public finances and place debt on a downward path. Reaching the FY 2022 fiscal targets rests on the reform of both general sales and personal income taxation. Protecting social spending and boosting social safety nets remain vital to mitigate social costs and garner broad support for reform.

    “The current monetary stance is appropriate and supports the nascent recovery. Entrenching stable and low inflation requires a data-driven approach for future policy rate actions, further supported by strengthening of the State Bank of Pakistan’s autonomy and governance. The market-determined exchange rate remains essential to absorb external shocks and rebuild reserve buffers.

    “Recent measures have helped contain the accumulation of new arrears in the energy sector. Vigorously following through with the updated IFI-supported circular debt management plan and enactment of the National Electric Power Regulatory Authority Act amendments would help restore financial viability through management improvements, cost reductions, regular tariff adjustments, and better targeting of subsidies.

    “Despite recent improvements, further efforts to remove structural impediments will strengthen economic productivity, confidence, and private sector investment. These include measures to (i) bolster the governance, transparency, and efficiency of the vast SOE sector; (ii) boost the business environment and job creation; and (iii) foster governance and strengthen the effectiveness of anti-corruption institutions. Also, completing the much-advanced action plan on AML/CFT is essential.”