The International Monetary Fund (IMF) has recommended that Pakistani authorities withdraw/eliminate all incentives for savings and financial investors in the upcoming fiscal year budget.
Sources told ProPakistani this includes perks for banks who repatriate funds from international clients who rely on advance payments for imports. The lender wants local authorities to re-balance from state to private-led support by removing distortionary protection, subsidies and concessions/reforms to improve the economy.
Pakistan is currently seeking investment from the United Arab Emirates, Saudi Arabia, Qatar, Kuwait, and other nations to boost its dollar reserves and improve its mining, agriculture, industry, and energy sectors. Withdrawal of incentives for overseas investors may offset this objective indefinitely. What would they stand to gain without something in return?
Pakistan may face significant challenges in the coming years without support from the IMF, and fresh demands for the next fiscal year’s budget may
help overcome them.
IMF says this will include further progress through privatization and restructuring, and seek to limit the role of the state, including in the setting of prices and through the provision of concessions/subsidies for economic activity.
Where privatization is appropriate, as with Pakistan International Airlines (PIA), the lender said it will ensure that these plans are transparent and minimize impacts on the public balance sheet. The lender aims to further advance SOE governance reforms, including bringing the legal frameworks of all SOEs into line with the SOE Act in a phased manner, and further strengthening the operational capacity of the Central Monitoring Unit.
In the case of state-owned entities under the umbrella of the Sovereign Wealth Fund, IMF will try to ensure their governance frameworks are at least on par with the principles required by the SOE Act. The lender is committed to ensuring the Special Investment Facilitation Council (SIFC) does not create an uneven playing field,
promise, or incentives of any sort or guaranteed returns, or distort the investment landscape.
IMF wants the best level of transparency and accountability practices for SIFC operations, including ensuring that all investments made under SIFC result from the standard Public Investment Management framework.
Sources added that the poorest 15 percent of Pakistanis pay a larger share of their income in taxes compared to the richest 15 percent. The federal government should focus on foreign investment in export-related sectors rather than the power sector, however, foreign investment would only flow into the country in exchange for incentives, something that the IMF wants Pakistan to get rid of.
An IMF delegation is currently in Pakistan to assess the government’s ability to withstand a new and lengthier loan program. The IMF’s approval of a new bailout depends on more austerity and easing political temperature in the coming months, sources added.
Pakistan has to undertake reforms to attract both domestic and f
oreign investment, particularly in productive sectors.
Source: Pro Pakistani