Pakistan passes new finance bill to avoid IMF bailout

A new finance bill described by some as a “mini-budget” introduced by the Imran Khan government last week has been warmly received by business and other quarters.

Finance Minister Asad Umar launched the Finance Supplementary (Second Amendment) Bill of 2019 during the National Assembly session.

The bill, which is the third for the current fiscal year, has been dubbed a “mini-budget” given the array of changes it has brought to the budget passed by the previous Pakistan Muslim League-Nawaz (PML-N) administration.

‘Designed to avoid IMF bailout’

While Asad Umar maintains that the finance bill is not a budget per se, he reiterated that it has been designed to ensure that Pakistan does not go to the International Monetary Fund (IMF) for a bailout package.

Pakistan’s recent financial dealings have been aimed to avoid having to go to the IMF. Earlier this month, Pakistan received a $6.2-billionbailout from the United Arab Emirates, a couple of months after receiving $6-billion package from Saudi Arabia.

Pakistan faces a balance of payment crisis, with a current deficit of around $15 billion and $12 billion in debt repayments. For the sixth time in a year, the rupee hit all-time low in December.

“Such financial numbers necessitate reforms that increase revenue generation, which is only possible through creating an investor-friendly climate, which is precisely what we have done,” a Finance Ministry official told Asia Times.

“Also, these reforms would have long-lasting effect. Because the long-term goal is that Pakistan should not have to go to the IMF. Even if it ends up being unavoidable this time, we should not have to do it in the future.”

Government insiders further reveal that many of the reforms in the finance bill were agreed upon during ongoing negotiations with the IMF. Many of these reforms focus on revenue generation through investment.

Taxes reduced

Among the most prominent steps taken by the government in the finance bill include a reduction in tax on small businesses and the agricultural sector from 39% to 20%. Small businesses have also been exempted from monthly submission of withholding tax returns. And super tax has been eliminated for non-banking companies as well.

The business community has lauded the government, especially for allowing interest-free revolving credit worth Rs5 billion ($35.76 million), exemption of duties on solar panels, wind turbines and gas infrastructure development.

“The mini-budget will significantly lower the cost for businesses and in turn increase the manufacturing growth. There are incentives for the Small Medium Enterprises [as well], which will further help improve the economy,” said Malik Shahid Saleem, president of the Rawalpindi Chamber of Commerce and Industry.

But, while the business community lauded the finance bill, it was also deemed ‘anti-poor’.

‘Anti-worker’

The National Trade Union Federation in Karachi led a protest against the bill, which they deemed as “anti-worker”, given how it benefits the rich. The rally, which included leaders of the Garment General Workers Union Korangi, urged the government to “‘improve the conditions for the poor and not create an environment for the rich to become richer”.

Opposition parties have duly attacked the finance bill. Most criticized the Pakistan Tehrik-e-Insaf (PTI) government’s economic policy as indecisive. Opposition leaders say that despite six months at the helm, the government still hasn’t been able to make up its mind on whether to go to the IMF.

Rana Afzal Khan, who served as finance minister in the PML-N government, said: “Yes, there are more taxes on, for example, mobile cards and vehicles, but what’s the point in coming up with a finance bill if you’re only enhancing the taxes by 7-8 billion rupees [US$50-57 million]? There will only be inflation [as a result of the finance bill].”

The PML-N leader also criticized the government for removing taxes on stock market shares, although he conceded that it would generate more revenue.

“In our time the stock market went from 19,000 to 52,000 points – so, in something like four years, capitalization increased by about $40 billion. And where did that money go? It went to people. That’s why we taxed that money. And now, even though the current government will be able to increase its revenue, it’s the people who will pay.”

Khan, however, did concede that his government failed to generate taxes from exports.

CPEC payments

“It was among a couple of areas where we couldn’t generate revenue. But what must also be taken into account is that our challenges were different. We spent a lot of money on [military operation] Zarb-e-Azb. Secondly, we put up the 15% upfront money needed on the CPEC [China Pakistan Economic Corridor] projects.

Meanwhile, former finance minister Salman Shah also praised the finance bill, saying he believed it was a step in the right direction.

“The government is trying to jumpstart the investment side of the economy. It was thought that the finance bill would have draconian clauses for revenue generation, and it was a pleasant surprise that that was not the case,” he said.

“The government has been able to generate positivity and to show that it has sufficient support globally. This would allow them the space needed to go ahead with reforms, especially on taxes, FBR [Federal Board of Revenue] and the power sector,” he added.

“If these measures can result in even an uptick of 10,000 points in the stock market, both local and foreign investment will increase further.”

‘Make Pakistan’ certificates

Meanwhile, on Thursday, Prime Minister Imran Khan launched a new investment certificate for overseas citizens, aimed at easing the country’s balance of payments crisis.

The scheme, known as the ‘Make Pakistan’ Certificate (PBC), is a sovereign US dollar-based bond with a minimum investment of $5,000.

“The purpose of launching the bond is to steer the country out of a very difficult period of its history by improving [the] balance of payments, reducing budget and trade deficits,” Khan said at a ceremony in Islamabad, according to AFP.

“I urge overseas Pakistanis to buy these certificates and invest in Pakistan and its bright future.”

The PBCs, which have no maximum investment amount, are available in three and five-year maturities, yielding 6.25% and 6.75%, respectively, according to the government.

The IMF and World Bank have forecast that the Pakistani economy will grow by 4.0 to 4.5% in the fiscal year ending in June, compared to 5.8% growth last fiscal year.

Khan has launched a highly publicized austerity drive since being sworn in, including auctioning off government luxury vehicles and buffaloes, in addition to seeking loans from its close allies.