ISLAMABAD: In a last-ditch effort to make progress in talks with the International Monetary Fund (IMF), Prime Minister Shehbaz Sharif on Monday green-lighted hikes in electricity and gas rates and general sales tax (GST). Lighted up.
The government also approved an additional tax of Rs 180 billion, raising the annual tax target of the Federal Board of Revenue of Pakistan (FBR) to Rs 7,650 billion. By increasing GST from 17% to 18%, the FBR will be able to collect Rs 55 billion in the remaining five months.
However, the visiting IMF mission is still insisting on a further adjustment in electricity rates which would be Rs 12.50 to Rs 14 per unit. The Fund has also recommended that standard additional tax measures be taken and expenditure cuts be taken to limit the primary deficit within the prescribed limits.
Now that the government is exploring its options for first-hour spending, additional tax measures will be strengthened. So far, the power sector has been a major stumbling block and headache for Pakistan’s negotiators as its horrendous revolving credit and subsidy demands were not at all acceptable to the IMF.
“However, differences persist over the exact prescriptions to fix the ailing economy and its widening fiscal gap to meet the core deficit, which is still around Rs 550-600 billion. However, the Pakistani side has im FK has requested a meeting with the mission chief. Will move towards completion of the 9th review with Finance Minister Ishaq Dar,” sources confirmed to JEE News on Monday.
A senior finance ministry official expressed hope that the technical-level talks would be over by Monday night and then the IMF would share nine tables containing macroeconomic and fiscal frameworks with Pakistani officials to discuss the policy level. But the conversation can start.
“We hope that the talks will be concluded on February 9, 2023, as per the agreed schedule of both the parties,” the official said.
According to sources, the external side of the economy also paints a very bleak scenario as the IMF has estimated that the country will not be able to generate the required dollar inflows, mainly due to commercial loans and international bond issuance. From.
It is roughly estimated that the gross foreign exchange reserves may decline massively and the fund is likely to fall from $16 billion to less than $8 billion by the end of June 2023.
The IMF is also prescribing a further tightening of the policy rate by 100 to 200 basis points in the wake of rising CPI-based inflation, particularly core inflation.
On the expenditure front, the government will also explore the possibility of reducing expenditure on the Public Sector Development Program (PSDP), unbudgeted subsidies, and defense requirements.
The government has so far proposed to reduce the PSDP to the level of Rs 352 billion as the utilization of funds in the current financial year stood at Rs 152 billion.
Power sector losses have, so far, proved a tough nut to crack. National negotiators participated in the meeting presided over by Prime Minister Shehbaz on Monday evening.
The Prime Minister approved to increase the electricity rates to Rs 9 or 10 per unit. The Pakistani side requested to provide protection to consumers who consume up to 300 units of electricity per month. The IMF opposed this and argued that protection should be given only to users of 200 units.
The government has worked on a revised Circular Debt Management Plan (CDMP) under which it has raised Rs 675 billion through quarterly tariff adjustments, deferred fuel price adjustments, and the imposition of a surcharge of Rs 7.10 per unit. An additional subsidy of Rs. Residual markup of accumulated stock of Power Holding Company.
But the IMF did not allow the need for additional subsidy of Rs 675 billion, so it asked the government to review the electricity tariffs and end all types of non-budgetary packages for export sectors and Kisan package as well. The IMF estimated that the additional subsidy would be around Rs 670 billion at a time when the government had given Rs 570 billion in subsidies in the 2022-23 budget.
The gas tariff will also be revised upwards and the government is exploring its options to provide maximum protection to the lower slabs.
