Tricky Economic Scenario

The economic uncertainty has been stretched to unprecedented limits rendering Pakistani economy tremendous harm and still the final decision has not been arrived at.

The country is facing extreme paucity of foreign exchange reserves that are at their lowest since 2014 and cover less than two weeks of imports with State Bank of Pakistan stating that the current dip took place when $170 million were released to meet external debt payments.

This level has actually crossed the red mark repeatedly with no help coming from any source. Already the initial shocks of the extremely thin foreign exchange reserve have started to be felt across the country with shortage of fuel reported being felt in small towns and adjacent rural localities.

Though the officialdom is insisting that such shortage is caused by hoarders who are taking undue advantage of the current economic turmoil but this is simply not the only plausible justification of shortage as the malaise runs deeper. Official line however is that the government has started to raid storage dumps of the hoarders so that this artificially created shortage is sorted out.

The contentious delay in completion of the 9th review of IMF programme is cause of worry in financial circles though the coalition government is trying hard to assuage the sentiments of dejection but to no great effect. This situation reveals that the delay caused was primarily due to the tough stance taken by the IMF represented by its team that parleyed with Pakistani financial authorities in Islamabad.

Throughout the negotiations process the IMF team was very tight-lipped about their task and same was the case with the Pakistani side. The secrecy was palpable amidst a very tense situation with no sign emerging from the talks.

A quiet gloom hung over the parleys with many observers showing extreme reluctance about giving their views as they are not sure of what was taking place behind closed doors. At the end of the parleys responding to questions from reporters after addressing a road safety conference in Islamabad the incumbent finance minister refused to elaborate more on the matter citing that there was an understanding between gentlemen that both sides will not talk so that this protocol is to be followed though he assured of positive outcome.

IMF delegation headed by Nathan Porter reportedly focused on fiscal table and financing and that there was a broad consensus on the reform actions and measures. Though there were hardly any details about the IMF programme but somehow the stock market suddenly appeared upbeat embarking upon a bull run. The positivity of the stock market rubbed off on the rupee that gained somewhat after enduring a severe beating lately. It also reported that the recovery of confidence in the stock market was the outcome of strong corporate results. It was reported that speculations of strong payouts to companies to settle circular debt and restructuring of debt repayments after the IMF programme’s resumption also played a catalyst role. It was also pointed out that at its current situation, the market has been discounted and the earnings-to-price ratio is very attractive. The pressure on economic affairs though has not lifted to satisfactory extent and the expectations are currently riskily balanced and it may well be the tough-and-go affair.

The IMF pressure has compelled the government to review Pakistan’s anti-corruption framework and it has agreed to introduce more amendments to the National Accountability Ordinance and the Federal Investigation Act.

The IMF slapped the condition last year after the government made changes in the NAO that equally benefitted the politicians as well as the bureaucrats. Though the government was quite reluctant to comply with this condition but the wilted under the IMF’s pressure and hurriedly prepared suggestions to be presented to the IMF. It is reported that one of the proposals recommended that the anti-corruption agencies should have well-defined jurisdictions particularly NAB and FIA. It is mentioned that in Pakistani system severity of punishment may not bring desirable results but certainty of punishment may prove to be an effective form of deterrence.

It is therefore mentioned that preventative approach was required to be adopted at an institutional level to curb corruption and prescribed punishments might be ensured for the suspects, if they were proven guilty. It is also suggested an inspection of accounts of public sector departments along with building the capacity of officials of anti-graft agencies.

It includes appointment of chief finance and accounts officers and chief internal auditors to prevent corruption at the institutional level. It is also pointed out that the establishment of an efficient anti-corruption regime for a country the size of Pakistan is not going to be a short-term process and will require a continuous effort in reviewing the structures and processes involved. In this context the coalition government told the IMF that in this background, it was advised that the primary role of anti-corruption outfits must be to probe into corruption besides allocating its resources on training and capacity building of its investigating officers.

It is quite obvious that the pressure exerted by the IMF is substantial as could be gauged by the rather hurried act of the incumbent finance minister who stopped the Federal Board of Revenue (FBR) from its indecent move to award its officers allowances by diverting taxpayers’ money. It was reported that in a rather irregular action the FBR notified new rules to divert taxes and fees for the distribution of allowances among its officers including the chairman and other personal benefits to officers belonging to the Inland Revenue Service (IRS).

The objection centred around the digital invoicing that would have resulted in the diversion of funds originally meant for technological upgrade of the Points of Sale (POS) system.

Initially, the FBR wanted to divert 100% of the POS funds but on the insistence of the invoicing segment 10% was left for technological up-gradation. The action was agreed with by the finance ministry that through the Finance Act 2019, Section 76 inserted into the Sales Tax Act 1990 empowering the FBR with the approval of minister in charge to impose levy, fee and service charges on tier-1 retailers of Rs.1 per invoice. Subsequently, the FBR with approval of the then federal finance minister levied the POS service fee of Rs.1 per invoice on tier-1 retailers.

This diversion was subsequently objected upon by the Prime Minister’s Office stating that no rules could be notified without approval of the federal cabinet. It was clearly tricky to observe that the tax machinery had quietly notified the new IRS Common Pool Fund Rules 2023 without seeking prior approval of the federal cabinet. However, the FBR defended the illegal diverting of taxpayers’ money towards personal use, saying the FBR’s salary is not even equivalent to half the salary of other government institutions like FIA, IB, NAB, PAS, PSP and other civil service groups.

Interestingly, no rules authorise the FBR to misuse the money received from the poor and rich people for technological up-gradation. The FBR charges Rs.1 per invoice even from a person whose monthly income may be only Rs.10,000 and every citizen pays Rs.1 on every invoice generated at the time of shopping and the total collection runs into millions of rupees.