ISLAMABAD: The federal cabinet on Sunday approved plans to hike electricity rates and end subsidies ahead of virtual talks with the International Monetary Fund (IMF) on the Memorandum of Economic and Financial Policies (MEFP) starting today. Approved.
The Cabinet also approved a revised circular debt management plan through circulation in this regard, JEE News reported on Monday.
A Washington-based lender’s team concluded policy-level talks last week, but the two sides could not reach an agreement due to differences over financial measures that needed to be taken before a staff-level deal.
According to the plan approved by the Cabinet yesterday to be submitted to the IMF, the government will increase electricity prices by Rs 7.91 per unit in four quarterly adjustments – February-March 2023, March-May 2023, June- August and September. -November.
Under the plan, the government will charge Rs 3.21 per unit from now, Rs 0.69 from March-May and Rs 1.64 per unit from June to August 2023. Govt increases electricity rates by Rs 1.98 paise per unit from September-November
The basic consumer tariff will be increased from Rs 15.28 per unit in June 2022 to Rs 23.39 per unit by June 2023.
The government also approved the abolition of Rs 65 billion electricity subsidy to exporters from March 2023.
The government will be able to get 51 billion rupees from the refund of subsidy on electricity for exporters, while 14 billion rupees will be collected by ending the subsidy on electricity under the Kisan package from March 2023. For the export sector, subsidy of 12.13 rupees per unit has been given. will go Power will be withdrawn.
About 250 billion rupees will also be collected from electricity consumers by June 2023. A surcharge of Rs 3.39 per unit will be levied under the scheme, sources told the publication.
By June, the increase in quarterly adjustments will yield Rs 73 billion. Sources said that in the quarterly adjustment, electricity will cost up to Rs 4.46 this month.
Virtual meeting
Meanwhile, the IMF has shared its menu on the table with the Pakistani authorities but there are still gaps in finalizing the right tax measures, increasing the basic electricity tariff and securing confirmation of overall external financing.
The menu proposed in the MEFP has been under discussion among policy makers in Islamabad for the past two days.
The Pakistani side will hold talks with the IMF through a virtual meeting today to finalize specific tax measures, resolve the lingering dispute over power base tariffs and the overall external financing needs and net balance for the end of June 2023. The International Reserve (NIR) target should be included.
It is not yet known how long the two sides will take to resolve these long-standing issues.
“The IMF has shared its menu and virtual talks will begin on Monday evening to finalize details on relevant key fronts. Once all the gaps are filled, a staff-level agreement will be reached,” he said. Top government sources confirmed this while talking to JEE News on Sunday.
Everything is now on the menu table and open for discussion to finalize the steps. The question here is what the authorities did in the last 10 days of talks with the IMF review mission while it was here. It seems that no conclusion can be drawn.
A flood levy was the government’s priority but the IMF was opposed to all measures that were closed. The IMF insists on “sustainable revenue measures”, including raising GST from 17 to 18 percent, slapping GST on POL products, and jacking up the petroleum levy on energy.
The Tax Laws Amendment Ordinance 2023 is expected to be promulgated within this week, possibly from February 15, to generate an additional tax of Rs 170 billion in the remaining four and a half months of the current financial year.
Increase in GST rate from 17 to 18% will fetch Rs 60-65 billion, withholding tax on banking transactions Rs 45 billion, increase in Federal Excise Duty (FED) on sugary drinks (this is still under consideration). ), increase in FED on domestically manufactured and imported vehicles and increase in FED on cigarettes etc.
Some of the proposals sparked heated debate between the two sides. At one point, the Prime Minister’s Special Assistant had to play a role to calm the emotional atmosphere, as a participant from the Pakistani side argued to the IMF mission last week that the fund mission was all kinds of regressive tax measures. Why is he asking? Amid rising inflationary pressures.
In the power sector, the IMF wants a hike in the base tariff, as the government has approved a revised CDMP to bring down the baseline scenario to reduce the debt pile.
The revised CDMP did not say anything about the base tariff hike, as Pakistani officials argued that they had done it last August 2022.
However, the IMF disagrees and demands an increase of Rs 4.06 per unit in the base tariff. Regarding the gross external financing and NIR target, a senior State Bank of Pakistan official told JEE News that the NIR target for the end of June 2023 is yet to be agreed with the IMF.
External financing
Meanwhile, government sources told JEE News that the most pressing issue facing economic managers was to ensure external financing requirements to increase foreign exchange reserves from their current level of $2.9 billion by June 30, 2023.
During the last IMF review conducted in August/September 2022, foreign exchange reserves with the State Bank for the end of June 2023 were pegged at $16.2 billion.
However, it seemed impossible to bring it up to that level. This is the most important point, as Pakistan is anxiously waiting for the fulfillment of promises made by Saudi Arabia, UAE, Qatar and China.
These countries say that they will support Pakistan if Islamabad is under the IMF program, while the fund says that it will enter the program only when these countries give assurances of assistance to Pakistan. .
It is not known how this issue will be resolved in the coming days and weeks.
