IMF warn Pakistan of risks if reforms stall ISLAMABAD: The International Monetary Fund (IMF) has cautioned Pakistan that delaying economic reform or reversing decisions that have already taken could undo the economic stability achieved over the past three years.
“The economy has turned in a different direction, and set a new course for growth,” IMF Resident Representative Tokhir Mirzoev said on Wednesday while talking to a select group of journalists.
“The economy in Pakistan might not have reached the final destination, but it is in the right direction. This is more important to appreciate,” he commented.
Last week, the IMF and Pakistan completed the $6.4 billion bailout programme on a successful note. This programme was the first ever to have reached completion out of the total 11 IMF programmes.
At the close of the programme, Mr Mirzoev said the real challenge was now for the policymakers to build on what Pakistan has achieved in the last three years and to continue the momentum of the reform process.
“The end of the IMF programme did not mean an end of the reforms,” he said, adding that in case the reforms were not pursued or earlier decisions reversed, Pakistan might end up with a crisis.
He said Pakistan had a much strong financial position at the central bank in the form of foreign exchange reserves, and much better fiscal position in respect of budget.
This, he said, meant Pakistan was now more resilient to shocks for quite some time. He further said that in case of small to medium shocks, the country had enough buffers to absorb it without falling into crisis and without asking for emergency assistance.
The current situation “gives an opportunity to Islamabad to build on it”, he said.
Answering a question about the reasons of economic crisis, he said it did occur either because of external shocks or domestic bad economic policies or mismanagement.
In the post-programme monitoring, he said the IMF would now only review the performance of economic indicators two times a year.
He specifically talked about the accumulation of reserves which he said was not alone the outcome of borrowing and there were other factors as well.
The IMF official said almost all targets which were set at the start of the programme were achieved. Replying to a question, he said there was no harm in giving waiver as long as the reform was going in the right direction.
Mr Mirzoev said the speed of accumulation of circular debt has declined over the years. It is the outcome of multitude of factors in achieving the results, he said, adding that the results could have been better in case the government carried out the privatisation plan.
On falling exports, he said there were several other factors other than fiscal policy which helped in boosting proceeds. He counted ease of doing business, efficient energy supply and business environment as reasons behind drop in exports.
The IMF resident representative said Pakistan had a narrow tax base. As a result, the tax-to-gross domestic product (GDP) ratio was now around 12pc, which should have been around 15pc. In fact, this should be in the range of 20pc keeping in mind the comparable economies, he said.
The tax measures taken by the Federal Board of Revenue (FBR) in the last three years was one way to tax those segments of the society who paid no taxes while enjoying public goods, he said.
The purpose of withholding taxes, he said, was not only to bring more people into the tax net, but also to raise the revenue. In Pakistan, he said, the identification of non-filers for tax purposes was an alternative because you could not force it due to strong opposition. “We have seen it in the case of traders and real estate stakeholders,” he said.
Mr Mirzoev also suggested that the system of withholding tax needed to be refined in a way to protect the vulnerable segment of the society to file paperwork for getting refunds. “Let’s improve the system to benefit a large number of people,” he said.
On the refund issue, he said the FBR needed to come up with a transparent system to separate the eligible and non-eligible refunds so that the genuine refunds were issued within the time frame.