ISLAMABAD: According to well-placed sources in the Ministry of Finance, the government is working on seeking relief within the IMF loan programme to accelerate economic growth, attract investment, reduce unemployment and poverty, lower power tariffs, provide tax incentives, and secure a cut in the policy rate.
Sources said the government plans to formally request significant changes in the structure of the IMF programme. These proposals have been discussed at the highest level of government and include seeking relaxation in primary balance and provincial budget surplus targets in the upcoming fiscal year, in consultation with the IMF. It is also under consideration that a higher fiscal deficit target may be allocated in the next budget to create fiscal space. The Ministry of Finance has shared these proposals with Prime Minister Shehbaz Sharif.
After completing two years in office, the government is now moving towards allowing the economy to gain momentum in its third year, with the objective of achieving 5 to 6 percent economic growth in the final year of its tenure. The strategy aims to keep the IMF programme on track while pursuing major relief measures within its framework.
The Prime Minister has directed the Ministry of Finance and FBR officials to fully cooperate with the business community to encourage investment. Four key proposals were discussed, with the government’s top priority being export-led growth. The Prime Minister also expressed concern over the trade deficit recorded from July to December of the current fiscal year.
Another proposal focuses on boosting investment by exploring all available opportunities. The Special Investment Facilitation Council (SIFC) has been tasked with taking concrete steps to increase investment, as higher investment is expected to drive economic growth, create employment opportunities, and help reduce unemployment and poverty.
The government is also considering further reductions in power tariffs to make local industry more competitive in international markets. In addition, efforts are underway to create fiscal space for tax incentives. According to official documents, the government has decided to reduce the super tax rate for the manufacturing sector under a new industrial policy.
Sources revealed that under reforms to the super tax structure, the super tax rate for the manufacturing sector will be gradually reduced to 5 percent over four years. Subject to the achievement of a primary balance surplus, the super tax will be abolished in the fifth year. Approval of the new industrial policy from the IMF is still pending.
It is also proposed to increase the minimum income threshold for the imposition of super tax on the manufacturing sector from Rs200 million to Rs500 million. The threshold for a 10 percent super tax is proposed to be raised from Rs500 million to Rs1.5 billion, while the super tax rate will be halved over the next four years.
The new industrial policy also includes measures for the revival of sick industrial units, rationalisation of tax rates for the manufacturing sector, a strengthened bankruptcy framework, easier access to credit on soft terms, investment protection, and an increase in manufacturing exports.
Another proposal under consideration is a reduction in the policy rate in line with declining inflation to facilitate easier access to credit for the private sector. Targets may also be fixed for banks to enhance private sector lending.
All these proposals will be discussed with the IMF, and upon receiving a green signal, the government intends to introduce these measures in the upcoming budget. However, no formal discussions between the economic team and the IMF have taken place so far, and the IMF’s response remains uncertain.
Sources further said that to achieve higher economic growth, the Prime Minister has directed a revision of the Uraan Pakistan Plan to align it with ground realities, and the Ministry of Planning is reworking the plan. The Prime Minister has also instructed the Ministries of Finance, Planning, Commerce, Industries and Production, and the FBR to come up with out-of-the-box solutions to boost economic growth.
These proposals are currently at a preliminary stage and have been discussed only at the top level. Relevant ministries will now prepare detailed working papers, after which formal consultations with the IMF will be initiated.
