IMF chief Says Pakistan Close to Deal on Policy Review

Pakistan is close to reaching an agreement with the International Monetary Fund (IMF) on the policy review that would unlock the second tranche of the $3 billion Standby Arrangement (SBA), the global lender’s chief said on Wednesday.

IMF Managing Director Kristalina Georgieva stated that she expected the agreement to come within this week, and praised the Pakistani authorities for sticking to the programme in a difficult time.

“The Pakistani authorities and the minister of Finance deserve credit for, in a very difficult time, sticking to the programme that they had,” Georgieva said.

She added that the main issue in Pakistan was tax collection, and urged the government to collect more taxes from those who can pay.

“The country today collects 12% tax to GDP. We are saying [that] it has to be at least 15% to have the revenues, to sustain the functioning of your economy. So, please, for the people in Pakistan that can pay taxes, collect it from them,” she said.

According to sources privy to the ongoing talks between Pakistan and the IMF mission, Islamabad has agreed to impose a 40% windfall tax on the profits of the banking sector under the IMF’s conditions.

The sources said that the banks had earned windfall gains from the high volatility in the rupee-dollar exchange rate and the high interest rates on government securities.

The windfall tax is expected to generate Rs55 billion in revenues for the government for the financial years 2021 and 2022, and help bridge the tax revenue shortfall that the government faces.

The sources also said that the IMF delegation and the Pakistani economic team had completed discussions on all sectors, and were likely to prepare the Memorandum of Economic and Financial Policies (MEFP) draft today.

The Pakistani delegation was led by Caretaker Finance Minister Shamshad Akhtar and comprised State Bank of Pakistan (SBP) Governor Jameel Ahmad, Federal Board of Revenue (FBR) Chairman Malik Amjed Zubair Tiwan, and officials from the finance and energy ministries.

The sources further said that the parties had agreed to not increase the interest rate further, and that the windfall tax did not require any amendments in the Finance Bill, but only approval from the federal cabinet.

Georgieva has praised Islamabad’s commitment to the program, acknowledging the challenges they have overcome. The IMF mission’s visit to Islamabad has now concluded. The team’s findings and observations during this visit are eagerly anticipated.

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