ISLAMABAD: In a last-ditch effort to break the deadlock with IMF, Prime Minister Shehbaz Sharif approved raising the electricity tariff ranging from Rs4 to Rs10 per unit, increasing the gas tariff and jacking up the GST rate by 1 percent from 17 to 18 percent. The government has also approved additional taxation of Rs 180 billion increasing FBR’s annual tax target to Rs.7,650billion. With a one percent hike in GST rate, the FBR estimates to fetch Rs55billion in the remaining five months.
However, the IMF’s visiting mission is still insisting upon higher adjustments in electricity tariff which would hover beyond Rs12.50 to Rs14 per unit. The Fund also suggests undertaking qualitative additional taxation measures and slashing down the expenditure side to restrict the primary deficit within the envisaged limits.
Now that the government is exploring its options to clock expenditure heads first, the additional taxation measures will be firmed up. So far the power sector has proved a major stumbling block and headache for Pakistani negotiators because of its monstrous circular debt and yawning subsidy requirements were not acceptable to the IMF at all.
“Although, differences persisted over exact prescriptions for fixing the ailing economy and its yawning fiscal gap in achieving the primary deficit which still hovers around Rs 550 to Rs 600 billion. However, the Pakistani side has made a request to the IMF’s mission chief for meeting with Minister for Finance Ishaq Dar for moving towards completion of the 9th review,” top official sources confirmed while talking to The News here on Monday.
One senior official of the Finance Ministry hoped that the technical level talks still continued and would be accomplished on Monday night. He further said that then the IMF would share nine tables comprising macroeconomic and fiscal framework with Pak authorities to kickstart policy levels talks. It is our hope that the talks would be concluded on February 9, 2023 as scheduled by both sides, the official concluded.
The external side of the economy, according to the sources, also possessed a very bleak situation at a time when the IMF assessed that the country might not be able to generate desired dollar inflows, especially on account of commercial loans and the launching of international bonds. It is roughly estimated that the gross foreign exchange reserves might be slashed massively and the Fund was likely to project it reduction from $16 billion to less than $8 billion by the end of June 2023. The IMF is also giving a prescription of further tightening of policy rate by 100 basis to 200 basis points in the wake of rising CPI-based inflation, especially core inflation.
Pakistan and the IMF sides continued meetings to narrow down the differences and move towards striking a staff-level agreement. On the expenditure front, the government would also explore the possibility of slashing down the Public Sector Development Program (PSDP), un-budgeted subsidies, and the possibility of cutting down expenditures on defence requirements. The government has so far proposed slashing down the PSDP to the level of Rs 352 billion as so far the utilization of PSDP funds stood at RS 152 billion in the current fiscal year.
The power sector losses so far proved a hard nut to crack. The country’s negotiators participated in a meeting under the chairmanship of Prime Minister Shehbaz Sharif on Monday evening. The PM granted his approval for hiking the electricity tariff to the range of Rs 4 to Rs 9 or 10 per unit. Pakistani side made a request to allow protection of those consumers who use up to 300 units of electricity per month. The IMF opposed it and argued that protection should be granted up to 200 units. The government has worked out a revised Circular Debt Management Plan (CDMP) under which it sought an additional subsidy requirement of Rs 675 billion despite raising tariff of Rs 7.10 per unit through quarterly tariff adjustments, deferred fuel price adjustment, and imposition of surcharge to clear the outstanding mark-up of piled up stocks of Power Holding Company.
But the IMF did not allow the additional subsidy requirement of Rs 675 billion so it asked the government to revise upward the electricity tariff and abolish all kinds of un-budgeted packages for export-oriented sectors and the Kissan package as well. The IMF assessed that the additional subsidy would be hovering around Rs 670 billion at a time when the government had given a budgeted subsidy of Rs 570 billion in budget for 2022-23.
The gas tariff will also be revised upward and the government is exploring its options to protect the lower slabs as much as possible.
