Pakistan hopes to pass 7th IMF review hands down

ISLAMABAD: The government is confident in getting a positive nod from the International Monetary Fund’s (IMF) on 7th review as it addressed in details the fund’s concerns on the Prime Minister’s relief package, finance minister said on Wednesday.

“The IMF mission raised concerns over PM’s Relief Package on petrol, diesel and electricity prices as well as on tax amnesty for industrial sector but we explained them all aspects properly in details,” Tarin said talking to The News on the government’s parley’s with IMF.

“Now the IMF team will come back with final assessment on Friday (tomorrow) for holding virtual talks.”

The minister claimed the pending 7th review of the IMF was “almost done” because there was no difference of opinion on macroeconomic figures till December 2021.

On IMF demand for removing exemptions and raising rate under Personal Income Tax (PIT), the minister said nothing regarding PIT came under discussion as it would be a part of the next review’s agenda under the IMF programme because taxation measures would be taken for the next budget 2022-23.

Reacting to Tarin’s claims, officials said it would be quite difficult to strike a staff level agreement with the IMF at a time when the political dust was yet to be settled.

They said t political crisis in the country is looming over the ongoing staff-level review talks and a decision on the next loan tranche is likely after an outcome on confidence move due later this month.

Pakistani authorities have so far explained to the IMF the amnesty is more of an industrial package, which entails five-year tax holidays on projects with investment by Pakistani expatriates in Pakistan.

Pakistan will have to convince the IMF for breaching commitment of raising petroleum levy by Rs4/month until it reaches Rs30/litre.

This has become impossible due to the unprecedented rise in world oil prices and it is hoped the IMF will view it with leniency.

The ongoing discussions will focus on energy price reform, which seeks to bring electricity and gas prices in line with cost recovery along with the formulas placed in the amended NEPRA and OGRA Acts.

This would require raising the base electricity tariff and taking major steps to eliminate growth in circular debt in the power sector.

Pakistan and IMF will have to evolve consensus on revised macroeconomic and fiscal framework for estimating budget deficit and current account deficit.

The government had envisaged the budget deficit at 6.3 percent of GDP, which was likely to touch the mark of 7 percent of GDP for the outgoing fiscal year. Although, the size of the country’s economy increased manifold in the aftermath of rebasing of national accounts from 2005-6 to 2015-16 so it escalated to Rs55.5 trillion from earlier estimates of Rs48 trillion.

The size of GDP is estimated to go up to Rs63.8 trillion for the current fiscal year 2021-22; however, the budget deficit is all set to escalate further and likely to touch Rs4.4 trillion highest ever in absolute figure in the country’s history during any fiscal year.

IMF assessed the current account deficit at $12.9 billion on eve of the last 6th review of the Fund as it had already touched $11.6 billion in first seven months of the current fiscal year. Now the IMF will have to revise its current account deficit projection upward in the range of $18 to $20 billion. Thus arrangements of $5 to $7 billion additional financing will have to be bridged to avoid depletion of foreign currency reserves.