ISLAMABAD: Amid a long standoff over the fiscal gap, the International Monetary Fund (IMF) has closed a huge gap of around Rs 900 billion, equivalent to 1 percent of the gross domestic product (GDP). This is a major obstacle in the implementation of the staff level agreement.
However, Pakistani authorities have faced such a large fiscal gap in meeting the core deficit and asking the IMF to include deficit flows under the revised Circular Debt Management Plan (CDMP) and the required Rs 605 billion. The additional subsidy amount has been asked to be reduced compared to the earlier target. 687 billion rupees.
Therefore, the fiscal gap remained between 400 and 450 billion rupees.
Officials have flatly ruled out any possibility of an IMF condition on Pakistan Tehreek-e-Insaf (PTI) chairman Imran Khan’s signature to revive the fund programme, saying there was no such discussion with the review mission. happened
Differences between Pakistan and the visiting IMF review mission on determining the exact monetary gap still persist during technical-level discussions. Once it is finalized with the IMF, additional tax measures will be strengthened, which will be unveiled in the upcoming mini-budget. In view of the lack of agreement on the monetary gap figures, the technical level talks will continue on Monday and then the policy level talks are expected to start from Tuesday,” sources told reporters in a background chat. Confirmed by speaking to a select group. on Saturday.
He said that the government has agreed in principle with the IMF to remove electricity and gas tariff subsidies for the export sector as this kind of doleout is totally unacceptable to the lender. The official said that the scheme for exporters will be revised with major changes. However, the IMF agreed to the Kisan Package and it required electricity subsidy, 60,000 tubewell subsidy for Balochistan and subsidy for Azad Jammu and Kashmir.
Pakistani officials acknowledged that the power sector has so far been a major obstacle to achieving smooth sailing. Although revolving credit also continued to be a problem for the gas sector, they eventually managed to move forward on the issue. The overspending will breach the overall budget deficit target of 4.9 percent of GDP, which is likely to reach 6.5 to 7 percent for the current fiscal year.
When the fiscal gap between the two sides is discovered, the IMF will ask for additional tax measures. IMF has been asking to increase the GST rate from 17 to 18 percent or 17 percent GST on POL products but the government was opposing it.
The government is set to slap a flood levy on imports as well as the wealthy, levy a 41 percent levy on windfall profits from the banking sector, federal excise duty on cigarettes, sugary drinks (FE D) will increase the rate of 13 to 17 percent, increase in withholding tax rates on property transactions, overseas air travel and others. The IMF estimated that the FBR would face a shortfall of Rs 130 billion in achieving the target of Rs 7,470 billion.
Pakistani officials have outlined three options for persuading the IMF to secure a staff-level agreement. All three options primarily seek additional tax measures aimed at reducing spending and reducing inflationary pressures.
Pakistan has asked the IMF to waive Rs 470 billion flood costs and the latter has agreed to it. Pakistan and top IMF officials held an informal meeting on Saturday in which the IMF shared a preliminary estimate of a fiscal gap of 1 percent of GDP, which would cover the primary deficit of Rs884 billion. is equal It was decided to continue discussions at the technical level on Monday, so Power and the Federal Board of Revenue of Pakistan (FBR) meeting will continue to exchange data further to reconcile the various numbers. The IMF is expected to share nine tables of macroeconomic and monetary frameworks on Monday night or Tuesday, after which the two sides will hold policy-level talks.
The two sides are expected to reach a staff-level agreement by the end of negotiations on February 9. The IMF’s Executive Board will then consider approving the next tranche in March 2023.
It seems that the government is ready to fill the fiscal gap of Rs 400 billion through rationalization of expenditure, such as cuts in the development budget and other austerity measures and additional tax measures. He admitted that the loan disbursement has increased to Rs 5.2 trillion against the target of Rs 3.952 trillion for the first fiscal year. After the participation of provinces in NFC, the Center has no resources. The IMF also raised objections over the expected revenue surplus from the provinces, but the Pakistani side assured it that the federated units would help reduce the overall deficit.
The Pakistani side explained Prime Minister Shehbaz Sharif’s statement about the IMF’s review mission and said that the Prime Minister’s statement was intended to sensitize the public to take drastic measures as politicians want to save their political capital. The IMF team was also told that the prime minister’s statement was not meant to blame the lender for slapping tough conditions on Pakistan.
