Petroleum levy will rise to Rs50/litre, IMF told

ISLAMABAD: The International Monetary Fund (IMF) on Wednesday confirmed that its executive board was scheduled to hold a meeting on August 29 in Washington, DC, for considering Pakistan’s combined reviews under the Extended Fund Facility (EFF).

“The IMF’s Executive Board meeting for combined seventh and eighth reviews under the Extended Fund Facility (EFF) has been set for August 29,” the IMF’s Resident Chief in Pakistan Esther Perez Ruiz confirmed to The News here on Wednesday.

Pakistan has sent back its Letter of Intent (LoI) after the document was signed by Minister for Finance Miftah Ismail and Governor State Bank of Pakistan Dr Murtaza Syed. They also extended the confirmation that the petroleum levy would be jacked up to Rs50 per liter in a staggered manner. The government has also given a written commitment to the IMF that the petroleum levy would further go up by Rs10 per liter in September (next month).

Besides, the government is also set to present a mini budget through promulgation of an ordinance in order to bridge the fiscal gap that occurred after waiving off different tax incentives offered to powerful lobbies such as traders, bankers and others. With the approval of combined reviews, Pakistan will be able to draw $1.17 billion tranche under EFF programme. The government has also made request to the IMF’s Board to augment the EFF size with an additional $1 billion, increasing it from $6 to $7 billion as well as its time-frame from September 2022 to June 2023. After getting next tranche of $1.17 billion, Pakistan would obtain $4 billion from the ongoing EFF programme.

Islamabad will have to graduate from three more reviews for getting $3 billion more from the IMF during the remaining period of the current fiscal year. Pakistan will have to manage external financing of $35 billion during the current fiscal year in order to repay its external debt servicing of $22 billion and fulfilling the current account deficit of $11 to $12 billion for avoiding further depletion of foreign currency reserves.

The foreign currency reserves held by the SBP had depleted at an alarming pace and stood at $7.8 billion on August 5, 2022 against over $20 billion in same period of the last fiscal year, indicating the reserves depleted by $12.2 billion in the last 12 months. It will be a challenging situation for the incumbent regime to build up foreign currency reserves in the current fiscal year as a buffer to absorb any external shocks because with the existing levels of reserves, Pakistan will remain vulnerable to shocks at any point of time in the current fiscal year.

After fulfilling the external financing gap with requirement of $35 billion, the government and SBP will have to join hands to shore up more dollar inflows for building up the dwindling foreign currency reserves.