Revised conditions by International Monetary Fund

24th December 2014

 
 

The International Monetary Fund (IMF), in conclusion of its negotiations with Pakistan for the $1.05 Billion tranche, has imposed new regulations on Pakistan – particularly for the State Bank of Pakistan (SBP) and FBR.

SBP Changes

The IMF has instructed SBP to set floor and ceiling rates for the economy’s discount rate – to ensure effectiveness of monetary policy implementation and inter-bank and open market operations. In essence, this will regulate the banking sector’s earnings from government lending within the preset interest rate limits. SBP has agreed to implement this change from September 2015.

Analysts’ opinion

Financial analysts and macro-economists are skeptical on the success of this new change – they feel SBP is ineffective in using the regulated interest rate to positively affect the behavior of market players. The central bank has used the interest rate as the sole tool to alter the economy’s path in the past; regulating their only tool will leave SBP ill-prepared against exogenous economy shocks.

FBR Changes

In an effort to implement effective taxation policies in the economy, the IMF has instructed the government to reduce FBR powers for the issuance of Statutory Regulatory Orders (SROs) on tax reliefs and rebates. Under the present system, FBR holds authority to issue tax exemptions to influential segments of Pakistan’s economy. The IMF aims to break this norm to widen the tax net and volume in Pakistan.

IMF has also instructed FBR to set an indicative ceiling on its collection targets to improve tax collection in the economy. This will reduce Pakistan’s dependency on local and foreign debt, especially for its developmental expenditure.

 

 
New Comment

Name

Email

Comments

 
 

CAPTCHA Image [Different Image ]