IMF talks to focus on mini-budget possibility, hike in electricity, gas tariffs
For the FBR, the policy level talks will also determine the revised tax revenue target.
ISLAMABAD (Dunya News) – As talks between an International Monetary Fund’s (IMF) delegation and Pakistan begins on Monday after a two-day break to evaluate Islamabad’s performance for the third tranche of $450 million of the $6 billion bailout package, suggestions for presenting a new mini-budget or possibility of imposition of new taxes worth Rs200 billion besides raising electricity and gas tariffs will be critically discussed.
Sources familiar with the matter told the media that in today’s meeting, particular attention will be paid by the IMF in analysing independent working of regulatory bodies NEPRA and OGRA.
New slabs for the power sector are likely to be introduced as well as the government is likely to decide on hike in power and gas tariffs while eliminating subsidies for crucial ease of monetary pressure on the budget.
For the Federal Board of Revenue (FBR), the policy level talks will also determine the revised tax revenue target and increase in tax existing rates.
The IMF team will be informed about the progress made by the State Bank, finance ministry, commerce ministry and the FBR on the targets set by the global lender.
Talks between Pakistan and the IMF began last Monday for the disbursement of third tranche of about $450 million under the $6 billion Extended Fund Facility (EFF) finalised in May last year.
The IMF delegation, scheduled to remain in Pakistan for twelve days, are performing quarterly review (from October till December) of the economy in the current fiscal year FY20.
The global moneylender has been also considering the performance of various ministries and government departments, and in particular, energy and tax reforms under the current regime.
Mr Shaikh talked to media and confirmed that talks with the IMF have commenced for third installment of loan.
“Several measures, including import of wheat, have been taken by the government to control inflation. Pakistani currency has strengthened against US dollar. Foreign investors are now interested to do business in Pakistan.
“Funding for Ehsaas Programme will be doubled with support from the IMF. Government has approved package of Rs7 billion for utility stores and is giving subsidy to about 72 percent electricity consumers.
“Provincial governments should take steps to control inflation and take action against profiteers. Hike in vegetable prices is seasonal and rates will reduce soon.
“Pakistan’s economy is improving. The IMF, which is granting us six billion dollars, will be briefed on economic performance from July to December.”
In late December, Islamabad received second tranche of $454 million from the IMF, and the global moneylender at that time declared that Pakistan’s reform programme was "on track and has started to bear fruit".
After the release of the second tranche, the total amount of money so far granted by the IMF under the current programme rose to $1,440m.
The Fund, after completing its first review of Pakistan under the EFF, noted that "decisive" implementation of government policies had helped preserve economic stability in the country.
In a press release, the IMF had noted that the "transition to a market-determined exchange rate has been orderly [and] inflation has started to stabilise, mitigating the impact on the most vulnerable groups of the population."
The IMF had further observed that the "authorities remain committed to expanding the social safety nets, reducing poverty, and narrowing the gender gap."
At the same time, however, the Fund had warned that "risks remain elevated". The press release had quoted IMF’s First Deputy Managing Director and Acting Chair David Lipton as saying: "Strong ownership and steadfast reform implementation are critical to entrench macroeconomic stability and support robust and balanced growth."
"The authorities are committed to sustaining the progress on fiscal adjustment to place debt on a downward path," Lipton had said, adding that: "The planned reforms include strengthening tax revenue mobilisation, including the elimination of tax exemptions and loopholes, and prudent expenditure policies. Preparations for a comprehensive tax policy reform should start early to ensure timely implementation."
"The flexible, market-determined exchange rate remains essential to cushion the economy against external shocks and rebuild reserve buffers," he had suggested.
Lipton had also pointed out that "faster progress [was] needed to improve the AML/CFT framework supported by technical assistance from the IMF and other capacity development providers" in order for Pakistan to be removed from FATF’s grey list.
Under the terms agreed, the government is required to apprise the parliament about its income, expenditure and savings by February 28.
The government is also required to introduce the state bank’s sovereignty bill in the parliament by March 31. The bill will restrict printing of new currency notes for covering the fiscal deficit.
The government will implement the two major provisions of the Financial Action Task Force (FATF) under which banks will strictly monitor the transactions of their customers, and the bank secrecy rules will not be applicable on the implementing agencies.
The IMF package, which was approved in July last year, is an effort to revive Pakistan’s ailing economy through periodic release of funds over a 39-month period, conditional on the government meeting the Fund’s policy guidelines.
Pakistan was placed on FATF’s grey list in 2018. In October, 2019, the FATF retained Pakistan on its grey list and gave the country four-months to take stronger measures to combat terror financing and money laundering.