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IMF team visits Pakistan

The mission was told that future trends looked promising to achieve somewhat difficult export target during 2000-2001

 From Shamim Ahmed Rizvi, Islamabad
Feb 19 - 25, 2001

The Central Board of Revenue (CBR), in its meeting with the 5-member IMF mission currently on a visit to Pakistan to review the economic situation during the second quarter of the current financial year, conceded a shortfall of Rs. 13 billion during the first seven months. Plainly admitting that this shortfall cannot be recouped during the remaining five months of the current fiscal. CBR chairman, however, assured that there will be no further slippage and the target for the remaining 5 months will be fully met as the government has made fool-proof methods to avoid any further shortfall.

The IMF review mission, had a detailed meeting with the CBR authorities on Thursday last. Their first question was as to why this shortfall occurred and we explained the reasons", an insider confided in PAGE. The officials of the CBR reportedly told the mission that it was expected that dutiable imports would grow by 12.7 per cent but it grew by only 4 per cent. Dutiable imports directly and indirectly contributes to 40 per cent tax revenue. This 40 per cent tax collection suffered an 8 per cent slippage due to this reduction in dutiable imports.

Survey contents were delayed and the third visit was to start in July, which remained pending till December as traders were allowed extension to declare their stocks in income tax returns. Final returns of IT were filed in December.

Interest on securities was reduced, which also decreased its withholding tax to a significant amount. This rate has again been enhanced and now we hope that on government securities on government courtiers would increase", the source said.

The review mission later called on the Finance Minister, Mr. Shaukat Aziz, who, however assured the mission that most of the shortfall occurred in the revenue generation during the first seven months of the current fiscal would be recouped during the remaining five months as all possible efforts are being made to achieve an all time high target of Rs. 430 billion. He was optimistic to close the financial year with revenue of about 425 billion.

Generally, it was said that the Public Sector Development Programme (PSDP) will be the first casualty in case the government implemented any contingency plan. This PSDP, it was feared, could be slashed down from Rs. 120 billion to Rs. 110 billion. The PSDP was being asked for the last many years to improve the budget deficit.

The mission was also told that exports have registered over 17 per cent increase in January this year and that future trends looked promising to achieve somewhat difficult export target during 2000-2001.

Officials of the Finance Ministry explained that the optimism of the Finance Minister was based on facts and ground realities. According to them, some of the key-economic indicators although closely missed the target, reflected an admirable growth this year as against the last year during 2000-2001, the remittances expanded by 17.35 per cent. The remittances increased by $84.62 million over the last year as Pakistan received $572.13 million remittances from overseas this year as compared to $487.51 million in the same period of last year. Ministry of Finance had projected $500 million worth of remittances during the first half of 2000-2001, but the actual inflow of remittances amounted to $572.13 million.

Tax revenue collection in seven months, although remained behnind the target by 13 billion, improved by Rs. 24 billion or 13 per cent over the last year as total provisional tax receipts amounted Rs. 211 billion this year, against Rs. 187 billion actual revenue of last year.

Meanwhile, country's exports and imports during July-January this fiscal posted 9.6 per cent and 10.1 per cent growth respectively in comparison with the corresponding period of the last fiscal.

Exports although remained 414 million below the target, for seven months, and settled at 5.222 billion as against the target of 5.636 billion. In terms of dollars the exports are higher by 456.90 million, if measured with 4765.80 million exports during the same period last year.

Imports during the period under review totalled 6362.10 million as against 5778.80 million in the same period of last fiscal. Overall increase in imports had been placed at 9.3 per cent over the last year.

Trade deficit, however, enlarged beyond the annual target. Last year the deficit settled at 1013 million during the period under review. The trade deficit has deteriorated because of drastic increase in the world's POL products and un-projected import of sugar. The annual size of deficit was put at 1.10 billion dollar for 2000-2001.

According to available data, the major industrial sectors have posted 7.69 per cent growth over the last year. That growth does not include the output of sugar.

This trend of growth in the economic indicators is expected to prevail further during the remaining period of the current fiscal, the sources said.

Some economic indicators, they said, may miss closely the annual target during this fiscal, but overall performance of exports, imports, tax revenue, remittances and industrial production would be much better than last fiscal.

Real GDP growth for this fiscal had been projected at 4.5 per cent agriculture growth at 2.6 per cent. Current account deficit at 1.6 per cent of the GDP or Rs. 981 million, reserves at 1.74 billion and remittances at 1.10 billion.

Last year agriculture sector marked improved growth because of bumper cotton and wheat crop. During this fiscal the water crisis has squeezed the chances of increase in the growth of this sector.

It may be pointed out here that 11 per cent increase recorded in tax collections for the first six months of the current financial year reflected a big shortfall in the actual tax collections as compared with the target set forth in the last budget, and this situation rather confirm the views of the IMF about the weaknesses of the country's tax regime. The previous governments had made some attempts to tax reforms, and several commissions and task forces were set up to recommend meaningful measures for combating tax evasion and corruption in order to substantially boost the yields. The IMF report about Pakistan has obviously downgraded all the so-called tax reforms introduced and put through so far by the previous government.