The International Monetary Fund (IMF) has expressed dissatisfaction with the budget proposals announced by Finance Minister Ishaq Dar for the fiscal year 2023-24, calling them a missed opportunity to broaden the tax base while criticising the new amnesty scheme that “creates a damaging precedent”.
“The draft FY24 Budget misses an opportunity to broaden the tax base more progressively,” Esther Perez Ruiz, the IMF Resident Representative for Pakistan, told Republic policy via message on Thursday.
“The long list of new tax expenditures further reduces the fairness of the tax system and undercuts the resources needed for greater support for vulnerable (Benazir Income Support Programme) BISP recipients and development spending,” she added.
Perez Ruiz said the IMF remains engaged in discussing policies to maintain stability, and “it stands ready to work with the government in refining this budget ahead of its passage”.
Her statement comes as the IMF programme remains scheduled to end on June 30, a day before the new budget measures come into force with the start of the new fiscal year in Pakistan.
New ‘tax amnesty.’
The IMF also came down hard on a new taxation proposal that seeks to enhance the limit in sub-section (4) of section 111 of the Income Tax Ordinance 2001 to the rupee equivalent of US$100,000.
“Enhancement of monetary limit of foreign remittance remitted from outside Pakistan from five million rupees to rupee equivalent of USD 100,000 for section 111(4) which places a bar on asking nature and source of unexplained income/assets,” it says in the ‘Salient Features’ section of the Budget 2023-24 (Income tax Ordinance 2001).
Perez Ruiz said the amnesty runs against the IMF programme’s conditionality.
“The new tax amnesty runs against the program’s conditionality and governance agenda and creates a damaging precedent.”
The IMF official also said measures to address the energy sector’s liquidity pressures could be included alongside the broader budget strategy.
The remarks from the Washington-based lender come when policymakers in Pakistan scramble to secure dollar inflows. Reserves held by the central bank have fallen below $4 billion and look set to decrease further, while the IMF programme still needs to catch up at the ninth review since November last year.
Debt restructuring talks are picking pace, and Finance Minister Dar has moved to alleviate markets several times, repeating the government’s stance of meeting all obligations promptly.
A day ago, Moody’s Investors Service warned that Pakistan is at an increased risk of failing to restart its bailout programme with the IMF, pushing the country closer to a sovereign default.
“There are increasing risks that Pakistan may be unable to complete the IMF programme that expires at the end of June,” Grace Lim, a sovereign analyst with the rating company in Singapore, was quoted as saying by Bloomberg on Wednesday.
“Without an IMF programme, Pakistan could default, given its weak reserves.”
