During bailout talks, Pakistan’s provinces refuse IMF demand for cash surpluses

KARACHI: Senior provincial Pakistani leaders on Saturday refused International Monetary Fund (IMF) demands that asked them to create cash surpluses of Rs. 430 billion, during the final stages of a bailout negotiation where Islamabad is looking to secure an $8 billion financial package. Instead, leaders have called on the federal government to fulfil the fund’s revenue objectives through efficient tax collection in the next fiscal year.
The IMF team which is in Islamabad led by mission chief Ernesto Ramirez Rigo, met with Pakistan’s de facto finance minister, Abdul Hafeez Sheikh, as well as finance department heads from four provinces, Balochistan, Khyber Pakhtunkhwa, Sindh and Punjab on Saturday. The four federating units often book surplus cash that is in turn used for calculating the overall budget deficit of the provincial and federal governments.
“I told the IMF that we cannot compromise on the development budget and the overall size of the budget,” Taimur Saleem Jhagra, Finance Minister of northwestern Khyber Pakhtunkhwa province told Arab News on Sunday, and said that a cash surplus could only be achieved through increased tax collection by the Federal Board of Revenue (FBR).
“From that (additional tax) I am ready to give surplus under the right conditions,” he said and added that the share of the provinces must be protected.
The IMF bailout has been delayed since last year as Pakistani officials have said they worry conditions attached to the proposed IMF loans could hurt economic growth at a time of worsening financial outlook for the South Asian nation of 208 million people. Decreasing Pakistan’s burgeoning fiscal deficit is a primary condition of the IMF.
But experts say the provinces cannot be forced to create cash surpluses by the IMF, and that Pakistan’s fiscal deficit can only be reduced through mutual understanding between the center and the provincial units.
“There is no legal requirement that binds provincial governments to give a surplus,” Dr. Salman Shah, a non-statutory member of the National Finance Commission and a former Finance Minister of Pakistan told Arab News on Sunday.
“The purpose of the IMF is not to dictate federal and provincial governments but (to ensure) that the overall fiscal deficit of Pakistan is within a certain limit. That can only be achieved when the federal government does its part and the provincial government its part,” he said.
During Saturday’s meeting, all provincial representatives agreed that the FBR would have to do more to increase revenue collection if Pakistan was to meet the fund’s demands.
At a press meet following the IMF talks, Syed Murad Ali Shah, who holds the portfolios of finance and chief minister of Pakistan’s southern Sindh province said, “The federation will have to improve its tax collection and address the slow-down of the economy.”
For this fiscal year, the FBR is expected to collect less than Rs. 4 trillion in taxes, a figure that the IMF wants to see at around Rs. 5.4 trillion in the next fiscal year.