Finance Minister Ishaq Dar met separately with State Bank of Pakistan (SBP) Governor Jameel Ahmad on Monday to discuss the exchange rate and higher-than-targeted profit from the central bank and provincial government in order to remove impediments to national harmonisation of general sales tax (GST).
The finance minister and SBP governor are also thought to have discussed the recent manipulation of exchange rates by banks, as well as the next steps for punitive actions and course corrections.
During Mr Dar’s meeting, the provincial chief secretaries reached an agreement on the harmonisation of GST across the country, which would remove obstacles to $1.4 billion in foreign inflows, $500 million of which would go to Sindh and the rest $900 million to the federal budget. Finally, because provincial governments are provided comparable local currency, the $500 million loan to Sindh would help the federal government in terms of foreign cash.
Consultations of government with IMF employes
According to inform sources, the consultations with IMF employees originally set for the last week of October, but later move to November 3. However, due to significant revenue and spending slippages, they could not take off as planned, and no new dates have been set as of yet.
Among other things, the expenditure deficit has grown due to an additional Rs100 billion in subsidies to export sectors on top of budget allocations and agricultural support. Revenues have also decreased, falling short of the collection target in October due to a decline in imports.
According to these sources, the finance minister expected the federal government’s earnings from the SBP to rise to almost Rs371 billion, up from Rs300 billion in the budget. Similarly, the government had already approved a Rs20 per litre hike in the petroleum development fee on high-octane blending component (HOBC) and was likely to manage subsidy allocations for Utility Stores Corporation.
These are some of the initiatives that could help bridge the overall revenue gap, largely through non-tax income, because the government thought it would be politically difficult to reverse special packages for exporters and agriculturists, especially given the recent terrible floods.
Harmonization of GST
According to informed sources, the centre and the provinces resolved definitional issues at a meeting of revenue authorities and relevant special assistants to the prime minister, and informed Mr Dar that there were no outstanding objections and that they had reached a consensus on GST harmonisation among the provinces and with the centre.
Mr Dar has previously met with Sindh Chief Minister Murad Ali Shah in Karachi and Islamabad in recent days to clear the way for World Bank financing at the political level.
Finance Minister Punjab Muhammad Mohsin Leghari also attended the National Tax Council (NTC) conference that reached the agreement on GST harmonisation, while other provinces represented by their respective finance secretary.
Dr Aisha Ghous Pasha, Minister of State for Finance and Revenue, Tariq Bajwa, and Tariq Mehmood Pasha, SAPM on Revenue, also attended.
According to an official statement, Mr Dar emphasised that harmonisation of GST was vital for ease of doing business, and that this would be “a major step towards completion of policy actions under the World Bank’s RISE programme.” Participants also voiced their thoughts.
Stability of exchange rates
Separately, Mr Dar and Governor SBP reviewed fiscal and monetary policies implement for the country’s economic stability, restoration, and growth. The summit also addressed the coordination of fiscal and monetary policy. The SBP chairman reminded the finance minister that the government’s ongoing administrative efforts and SBP policy measures “had resulted in rupee value stability and limited exchange rate volatility.”
He also present different macroeconomic policy efforts align with fiscal policy aims to achieve sustainable growth, assuring the minister that the SBP is “completely commit to assisting the process of economic restoration as per the policies of the current administration and its statutory mission.”
Mr Dar praised the SBP’s economic progress, acknowledged the SBP’s regulatory role in restoring exchange rate stability, and expressed satisfaction with the SBP’s present monetary policies. “If monetary policy is consistently consistent with fiscal policy, the economy may achieve sustainable growth and stability,” he cited as telling the SBP governor.
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