Government officials claim to be flexible with the FY24 budget and ready to work with the IMF to find an amicable solution.

 Government officials claim to be flexible with the FY24 budget and ready to work with the IMF to find an amicable solution.

The government expressed its willingness to be flexible on the subject on Friday and said it remained engaged with the international money lender to reach an "amicable solution" in response to the International Monetary Fund's (IMF) concerns regarding the fiscal year 2023–24 (FY24) budget that was presented to the National Assembly last week.

The finance ministry said in a statement that the government was "fully committed" and "keen" to at least complete the ninth review of a $6 billion IMF program, which has been stalled since October. It added that the government was "not 'doctrinaire' about any element of the FY24 budget and is keenly engaged with the IMF to reach an amicable solution.

The IMF has decided to release at least a portion of the $2.5 billion in pending disbursement under the 2019 Extended Fund Facility (EFF), which expires at the end of this month, subject to a number of conditions, one of which is that the government meets its requirements with regard to the budget for the upcoming fiscal year.

Esther Perez Ruiz, the IMF's resident representative for Pakistan, said in a late-night statement on Wednesday that the lender had brought up a number of concerns with the FY24 budget but was prepared to work with Pakistan to improve it before it was passed.

The budget for FY24, according to Ruiz, "misses an opportunity to broaden the tax base in a more progressive way, reduces further the fairness of the tax system, and undercuts the resources needed for greater support for vulnerable BISP (Benazir Income Support Programme) recipients and development spending." A new tax amnesty scheme proposed by the government also set a "damaging precedent" and ran contrary to the program's conditionality.

She continued by saying that actions to relieve the liquidity pressures on the energy industry might be combined with the overall budget plan.

The tax breaks offered in the budget, according to the finance ministry's answer to her claim, were "triggers" for growth in the real economy.

"This is the long-term way to give the average citizen a job and a means of subsistence. The amount is, in any event, relatively minor, the ministry insisted.

The Federal Board of Revenue increased its tax base by 1.16 million additional taxpayers, or 26.38 percent, in the last 11 months, according to the Ministry, expanding the tax base.

The 0.6 percent advance adjustable withholding tax on cash withdrawals over Rs50,000, according to the government, is another "big step" in this regard. "This is an ongoing exercise and will continue," the ministry stated.

The ministry responded to the IMF's worries about the tax amnesty by stating that the only change made in this area was to "dollarize" the value of an already-existing IT Ordinance provision.

"Section 111(4) of the IT Ordinance made this facility—which has always existed—available. The Rs. 10 million ceiling was implemented in FY2016. The FY2016 cap is being handled in terms of $100,000 in rupee equivalent, according to the statement.

The government stated the following regarding BISP funding: "Pro-poor activities in the budget are not limited to BISP recipients, whose budget has already been enhanced from Rs400 billion to Rs450 billion.

The budget allocates Rs 35 billion for targeted subsidies on five essential food products through the Utility Stores Corporation for households with a PMT (proxy means test) scorecard of 40 or less. There are millions of vulnerable people living above the poverty line. BISP beneficiaries can also use this facility.

The ministry also stated that discussions with the IMF were ongoing and that all "technical issues" had been resolved quickly by the time the loan program's ninth review was conducted in February.

"The only issue that remained was with regard to external finance, which, from what we can see, was also peacefully settled during the prime minister's phone discussion with the managing director (MD) of the IMF on May 27, 2023.

"Even though the FY24 budget was never discussed in the ninth review, we still supplied the budget numbers with the IMF mission in accordance with the PM's promise to the IMF MD. And we are in constant communication with them, even about the budget.

The ruling coalition in the Centre "has already taken many difficult and politically costly decisions" to enable the conclusion of the ninth review, the ministry continued.

Pakistan was anticipating receiving about $1.2 billion from the IMF in October of last year as part of the EFF's ninth review, despite reserves being at critical levels for the preceding few months. But almost 8 months later, that tranche still hasn't arrived, according to the IMF, which claims Pakistan can't fulfill crucial requirements.

The ninth review of the program, which is just weeks away from expiration, is still in limbo while the tenth review, which was initially planned, is all but a non-starter.

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