Monetary policy is the process by which the monetary authority of a country, typically thecentral bank or currency board, controls either the cost of very short-term borrowing or the money supply, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.
Further goals of a monetary policy are usually to contribute to the stability of gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with other currencies. Gross domestic product is a monetary measure of the market value of all the final goods and services produced in a period of time, often annually. GDP (nominal) per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore using a basis of GDP per capita at purchasing power parity (PPP) is arguably more useful when comparing differences in living standards between nations. Monetary policy involves central banks’ use of instruments to influence interest rates and/or money supply in the economy with the objective to keep overall prices and financial markets stable. The State Bank of Pakistan announced its new monetary policy couple of weeks before. It announced to increase the key interest rate by 50 basis points to 10.75%.
It said the current account deficit recorded a sizeable contraction during the first two months of 2019, which, together with bi-lateral inflows, helped ease pressures on SBP’s foreign exchange reserves.Average headline Consumer Price Index inflation reached 6.5 percent in Jul-Feb Fiscal Year 2019 compared to 3.8 percent recorded in the same period last year,” says the State Bank of Pakistan.The government has given an understanding to the International Monetary Fund (IMF) to move to a single value-added tax (VAT) regime in the cou¬ntry as part of an overall medium-term macroeconomic framework envisaging Rs1.25 trillion incremental federal and provincial revenues.
This would mean an additional revenue effort matching about 2.6 per cent of GDP (gross domestic product) over a period of three years. Federal taxes are committed to be increased by 2.3pc (about Rs1.08tr) during the three-year reform process under the IMF programme, starting with 1.1pc of GDP during the fiscal year 2019-20. This will be followed by 0.9pc of GDP additional revenue generation in Fiscal Year 2021 and 0.3pc in Fiscal Year 2022. But these are only the expectations and question to the better condition of country political environment.
Provincial taxes are committed to be raised by 0.1pc of GDP every year to achieve 1.6pc tax-to-GDP ratio during Fiscal Year 2022 from the current financial year’s ratio of 1.3pc. But due to enhancing the utility rates big industries even the cottage industry is not in the condition to pay taxes and fulfill the Expectations of FBR. Although FBR superior officers like Syed Nadeem Rizvi RTO chief and Asim Majid Khan are doing their best to make better collections from tax payers but if they will not be granted with facilities then how would FBR be able to achieve their targets. So supreme policies of federal board of revenue will collapse and only the heavy burden of the salaries of FBR will increase day by day but all in vain. Although nameless accounts are still not providing good results. And how many time we will have to take the help of Amenity schemes . Moreover IMF is not seemed serious to reinstate our contracts which are the basic necessity to launch the heavy budget before June.
Agriculture income and immovable property taxes to be strengthened under three-year Fund programme. Moreover Pakistan is ready to make additional tax efforts equal to 1.7% of the total size of the national economy in the next fiscal year, as the new finance adviser establishes contacts with the International Monetary Fund (IMF) to keep negotiations on track. Adviser to PM on Finance moved swiftly and decided to present the Budget Strategy Paper in the federal cabinet on April 30 in addition to ensuring that the IMF staff level visit remains on track. But to hit the goal of tax efforts equal to 1.7% of the Gross Domestic Product (GDP), the government of Prime Minister Imran Khan may have to slap over Rs600 billion worth of additional taxes that will be equal to 1.4% of the GDP, The remaining 0.3% of the GDP will be achieved through administrative and enforcement measures. These numbers will be subject to scrutiny of the IMF Mission that, according to the Finance Ministry, is scheduled to arrive by the end of April. He also held a phone discussion with IMF Mission Chief to Pakistan Ernesto Ramirez-Rigo after talking with Azour Director of IMF, according to a statement issued by the Finance Ministry. They discussed the progress of negotiations on an IMF-supported programme for Pakistan.
Both sides expressed their commitment to moving the discussions forward and it was agreed that an IMF commission will visit Pakistan by the end of April. Meanwhile, Finance ministry said he would present the Budget Strategy Paper for the next fiscal year in the federal cabinet on April 30. Monetary policy seeks to promote economic stability by ensuring that the economy maximizes employment, controls long-term interest rates and maintains stable prices. The Federal Reserve holds the responsibility for monitoring and enacting monetary policy changes that influence the supply of money circulating within the economy. Any alterations to monetary policy will have a direct impact on the ability of small business to access credit and loan funding to reinvest in expansion and the hiring of additional workers.
IMF agreement is likely to be inked in June before or soon after budget 2019-20. It is very important to know that on what condition IMF is agreed on helping Pakistan. Because there are certain chances that IMF will be involving in Pakistan monetary policy to make sure the return of his amount. Which can make the budget even harder for Pakistan. And if easy policies are not made for the nation then there will be no flow of money in business industries. Which can harder the situation, as more unemployment will take place in Pakistan.
The writer is an entrepreneur & senior economic analyst