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IMF says talks continuing virtually with Pakistan for fresh…

7 June 2024
by admin

The International Monetary Fund (IMF) is considering a new bailout package for Pakistan under its Extended Fund Facility (EFF), according to Julie Kozak, the IMF’s director of communications.

In a press briefing held in Washington, Kozak highlighted the significant progress made during the recent IMF mission’s visit to Pakistan from May 13 to 23.

Kozak emphasized that the IMF mission’s visit resulted in substantial advancements towards reaching a staff-level agreement with Pakistan. “Pakistan can be supported under a new extended funding facility,” she stated, indicating the potential for continued financial assistance to bolster the country’s economy.

The discussions between the IMF and Pakistan are ongoing, with virtual dialogues playing a crucial role in the negotiations. Kozak assured that the IMF remains committed to supporting Pakistan through these challenging times, underscoring the importance of the EFF in providing necessary financial aid.

According to officials of the Ministry of Finance, Pakistan is expected to receive a new three-year loan program worth $6 to $8 billion from the IMF. Moreover, the budget for the new financial year is also being prepared as per the recommendations and conditions of the IMF.

On May 24, Pakistan and the IMF made notable progress in negotiations for a new loan program, despite concluding the recent round of talks without a staff-level agreement. The IMF’s 10-day visit to Pakistan, which began on May 13, laid a promising foundation for future discussions aimed at securing a comprehensive financial package, said a statement issued at the conclusion of the visit.

The IMF delegation’s visit emphasized critical areas such as human resource development, social security, and addressing the impacts of climate change. “Adequate progress has been made towards a staff-level agreement,” stated the IMF in their announcement. “Consultations will continue virtually to finalize the new program for Pakistan.”

It further said that the reforms aimed at achieving stable development in Pakistan. Islamabad is vigorously pursuing a new and larger loan program from the IMF, with officials from the Ministry of Finance aiming for a bailout package between $6 to $8 billion.

The 10-day negotiations reviewed Pakistan’s request and discussed comprehensive economic policies and reforms designed to achieve stable growth, the IMF statement said.

Science & Environment

IMF releases official statement after loan talks with Pakistan…

27 May 2024
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The International Monetary Fund (IMF) has released an official statement following discussions with Pakistan. The statement confirms that Islamabad has formally requested a new loan program from the IMF.

The IMF delegation, led by Mission Chief Nathan Porter, visited Pakistan and held extensive negotiations from May 13 to May 23 to discuss the country’s economic improvements.

The statement highlights that the Pakistani government is making serious efforts to increase revenue and emphasizes the need for fair tax collection from privileged sectors.

The International Monetary Fund (IMF) mission assured Pakistan of its commitment to working together for sustainable economic growth. The statement noted that Pakistan’s economy would stabilize with the support of the Extended Fund Facility (EFF) program.

Pakistan has successfully met the targets set under the Standby Arrangement Agreement, which will support the forthcoming new loan program.

The statement underscores the necessity of expanding the tax net to ensure economic growth and stability. The IMF calls for appropriate policy and exchange rate measures to control inflation and stresses the critical need for energy sector reforms in Pakistan.

Reducing the cost of energy production is essential, and a stringent monetary policy is required until inflation is under control, the statement said.

The IMF also highlighted the need to improve the performance of state-owned enterprises and indicated that privatization of these corporations is essential for better efficiency.

Science & Environment

IMF, Pakistan make significant progress on new loan, says…

24 May 2024
by admin

The International Monetary Fund (IMF) on Thursday stated that “significant progress” was achieved during talks with Pakistan towards reaching a staff-level agreement for an extended fund facility.

An IMF team, led by Nathan Porter, the IMF’s Mission Chief to Pakistan, visited Islamabad during May 13-23, 2024, to discuss the country’s plans for a home-grown economic programme that can be supported under the IMF’s Extended Fund Facility (EFF).

The visit was undertaken on Islamabad’s request.

“The mission and the authorities will continue policy discussions virtually over the coming days aiming to finalise discussions, including the financial support needed to underpin the authorities’ reform efforts from the IMF and Pakistan’s bilateral and multilateral partners,” Porter said in a statement.

Pakistan is likely to seek at least $6 billion under the new programme and request additional financing from the IMF under the Resilience and Sustainability Trust.

Ahead of the discussions, the IMF had warned that downside risks for the Pakistani economy remained exceptionally high.

The official said that building on the economic stabilisation achieved through the successful completion of the 2023 Stand-by Arrangement, the IMF and the Pakistani authorities made significant progress toward reaching a Staff Level Agreement (SLA) on a comprehensive economic policy and reform programme that can be supported under an EFF.

“The authorities’ reform programme aims to move Pakistan from economic stabilisation to strong, inclusive, and resilient growth. To achieve this, the authorities plan to continue to strengthen public finances to reduce vulnerabilities by improving domestic revenue mobilisation through fairer taxation while scaling up spending for human capital, social protection, and climate resilience; secure energy sector viability, including reforms to reduce the high cost of energy; continue progress towards low and stable inflation by appropriate monetary and exchange rate policies; improve public service provision through state-owned enterprise (SOE) restructuring and privatisation; and promote private sector development, by securing a level-playing field for investment and stronger governance.”

Porter also praised the Pakistani authorities, private sector, and development partners for fruitful discussions throughout this mission.

Science & Environment

IMF demands 18% GST on petroleum products – SUCH…

23 May 2024
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Negotiations between Pakistan and the International Monetary Fund (IMF) on a new loan program are expected to conclude today, with the possibility of the IMF mission departing tonight without reaching a staff-level agreement.

Sources close to the negotiations revealed that the IMF has set several pre-conditions that Pakistan must fulfil before a staff-level agreement can be reached. These conditions include the implementation of new taxes, an increase in electricity and gas tariffs, and comprehensive reforms in the energy sector.

One of the key demands from the IMF is the imposition of an 18% General Sales Tax (GST) on petroleum products. However, the government is considering an alternative approach by imposing a carbon levy on petroleum instead of the GST next year.

The negotiations have been particularly challenging, with further discussions set to take place today between the IMF mission, Finance Ministry, and Federal Board of Revenue (FBR) officials. The outcome of these talks will be crucial in determining whether a new bailout package can be secured.

Sources indicate that the government is already charging a petroleum levy of Rs60 per litre on petroleum products. It is estimated that this levy will generate Rs2,295 billion in revenue over the next two years, with Rs1,080 billion expected in the next financial year alone. The revenue from the petroleum levy is projected to increase to Rs1,215 billion in the following year.

Despite the intense negotiations, it appears that a new bailout package with the IMF is likely to be renegotiated after the new budget is presented in accordance with IMF conditions. This new budget is expected to be presented as per IMF conditions, potentially paving the way for a future agreement.

A day ago, while the policy-level talks between Pakistan and the IMF were still underway, the focus was on crucial economic reforms, particularly in the gas sector.

The discussions included a comprehensive review of tariff adjustments, measures to reduce revolving debt, and broader energy sector reforms. A significant increase in gas tariffs was likely to be implemented from August, impacting various sectors, including domestic consumers, fertilizer production, CNG stations, and the cement industry.

The proposed plan, which had been shared with the IMF, suggested a substantial hike in gas bills ranging from Rs100 to Rs400 for both protected and non-protected customers. However, the plan exempts commercial roti tandoors from any rate increases, recognizing their essential role in providing affordable food.

To address the persistent issue of circular debt in the gas sector, three different strategies have been presented to the IMF. These proposals include specific increases in gas rates for fertilizer factories.

Science & Environment

Bailout Package: Pakistan races to meet IMF’s prior actions…

23 May 2024
by admin

In order to secure a formal staff-level agreement with the International Monetary Fund for its next bailout programme, Pakistan has less than 40 days to complete a set of prior actions, mostly through binding parliamentary approvals and legislation.

According to a report published onlocal newspaper, Pakistani authorities and an IMF staff mission, led by Nathan Porter, have concluded their engagements covering critical sectors of the economy, including reforms in the power and gas sectors, state-owned entities, pensions, revenue mobilization, and monetary policy.

Pakistan last month completed a short-term $3 billion programme, which helped stave off sovereign default, but the government of Prime Minister Shehbaz Sharif has stressed the need for a fresh, longer term programme.

Pakistan’s financial year runs from July to June and its budget for fiscal year 2025, the first by Sharif’s new government, has to be presented before June 30.

Talks between the two sides started last week, with the country assuring the Fund of not taking the loan from the central bank and meeting all foreign debt obligations on time.

The two sides have reached a broad understanding on the necessary action points, timelines, and backup plans that the government will have to comply with through parliamentary approval of budgetary measures and related legislation in the Finance Bill 2024-25.

An official told the news outlet that the lender wanted a “stamp of approval” from Parliament for the reform and policy actions because of the unpredictable political environment—a concern which was also mentioned in the staff report.

The IMF mission would be leaving on Friday without announcing an SLA, the official added.

The implementation of gas and electricity tariff adjustments, approval of taxation and trade tariff-related policy measures, and amendments to tax laws through the finance bill would be reviewed by the IMF. Upon satisfactory compliance, the Fund is expected to formally announce the SLA by the end of June or early July 2024.

According to the official, online consultations would be enough for minor clarifications after Parliament approves the budget. He claimed that there would not be a follow-up mission.

The federal budget is scheduled to be presented in the parliament on June 7, with a tight schedule for parliamentary debate due to the Eidul Azha holidays.

Moreover, the government has agreed to introduce several tax-related measures and adjustments to the petroleum development levy in the upcoming Finance Bill 2024-25.

Such measures include a reduction in the number of income tax slabs for salaried individuals, treating agricultural income as normal income like any other sector, actions and punishments for non-filers, and an increase in their transaction costs.

The government has also agreed to remove the existing cap of Rs60 per litre on the petroleum development levy, making it open-ended.

The current price of petrol stands at Rs273.1 per litre after the government slashed its price by Rs15.39. The government has already reached the maximum permissible limit of Rs60 per litre in PDL, as stipulated by the law.

The two sides have agreed on an upward revision of natural gas prices for the domestic, fertiliser, CNG, and cement sectors, with no changes for special commercial consumers like tandoors. There would be some downward adjustments in the gas rate for the power sector as part of the upcoming gas price review, which will be effective from the new fiscal year.

The authorities have exchanged at least three different plans with the IMF on how to address the rising capacity payments and declining debt repayment horizons of China-Pakistan Economic Corridor-related power projects.

An official said the principal objective of full cost recovery through tariff adjustments would be protected by the authorities, along with demand-triggering measures.

On average, gas prices are expected to go up by somewhere between 20% and 30% with the advent of the new fiscal year.

Moreover, a list of 24 SOEs has already been shared with the IMF, with their categorisation as strategic, essential, or earmarked for privatisation. Pakistan has conceded to the IMF’s demand that only those functions and services be kept in the government which could not be performed by the private sector.

While addressing a pre-budget conference earlier this month, Finance Minister Muhammad Aurangzeb said that there was no such thing as strategic state-owned enterprises (SOEs).

“Dar Sb chaired the Cabinet Committee on Privatisation (CCoP) meeting on Friday. We [I and Dar Sb] are absolutely on the same wavelength that there is no such thing as strategic SOE,” Aurangzeb said and added that the government would accelerate the privatisation agenda.

Two days later, PM Shehbaz instructed the Privatisation Commission to carry out the privatisation of all SOEs, excluding the strategic ones, regardless of their profitability or financial losses.

Science & Environment

Govt informs IMF about changes in solar power policy…

22 May 2024
by admin

The Power Division’s officials Tuesday told visiting International Monetary Fund (IMF) mission about changes in the solar power policy and that power consumers pay Rs800 billion to government per annum through taxation on electricity bills causing Rs8 per unit hike in the bills.

They communicated to the Fund if the said taxation is eroded tariff would climb down by Rs8 per unit. In addition, power consumers also pay electricity duty, PTV fee and surcharges in their bills.

However, whole taxation cannot be allowed to end on electricity bills. It should be sliced down by Rs100-200 billion per annum, as it would help give relief to consumers by Rs1-2 per unit. The tax authorities should increase tax net at the maximum by roping in retailers, real estate and agriculture sectors.

The 17% General Sales Tax (GST) cannot be eroded by the Federal Bureau of Revenue (FBR), and this only contributes Rs600 billion in government revenue from electricity bills. Other taxes of Rs100-200 billion can be eliminated from electricity bills.

The top management of Power Division has also sensitised Prime Minister Shehbaz Sharif about massive taxation on electric power consumers and its impact on tariff.

“Right now country’s power sector is no longer sustainable, reliable and affordable, and we have to think over every option to make sure electricity at affordable”, official sources told The News.

A power consumer pays Electricity Duty (ED), a provincial duty, levied to all consumers ranging from 1.0% to 1.5% of Variable Charges. He also pays 17% of electricity bill as GST imposed on all consumers under Sales Tax Act 1990. Domestic consumers pay Rs35, while commercial consumers pay Rs60 as PTV licence fee in their electricity bills.

The consumer pays financing cost surcharge of Rs0.43 per kWh. It applies to all consumer categories except lifeline domestic consumers. Extra Tax is being charged to industrial and commercial consumers (not registered in active tax payer list of FBR) at 5% to 17% on different bill amount slabs.

Further tax is being charged at the rate of 3% to all consumers—having no Sales Tax Return Number (STRN) except domestic, agriculture, bulk consumers and street light connections. Commercial consumers also face a 5% Sales Tax on bills up to Rs20,000 and 7.5% tax on bills exceeding Rs20,000.

Income Tax is also being charged at varying rates depending on the applicable tariff and the electricity bill amount. However, the authorities are working on restructuring with focus on ensuring maximum efficiencies. They will also reduce tariff through efficiency gains. The power plants based on imported coal would be converted to local coal of Thar.

Changes in solar power policy

IMF has also been told almost 1938 MW of electricity has been added in the system through roof-top solar system under net metering mode. Because of this revenue loss of Rs100 billion in the system has been shifted to consumers by passing hike of tariff of Rs1.90 per unit on those who have not installed solar system on their roofs.

The Fund is briefed some changes are being introduced in the policy about solar panels being installed by the masses.

The government would introduce gross metering instead of net metering system. Tariff would be reduced to Rs7.5 to 11 per unit instead of Rs21. They will be provided electricity from national grid at Rs60 per unit during night or peak hours.

The IMF has been sensitised country’s national grid is currently providing service to rooftop solar consumers against the cost of storing electricity through batteries with huge impact to the system. If the consumer has roof solar system detached from the national grid, he would have to install huge batteries to store solar energy for consumption during night time. Per unit cost he would brave will stand at 20 cents or Rs60.

Under the new policy, buy back tariff from solar consumers would be brought down to Rs7.5-11 per unit keeping in view massive decline in solar panels prices. Electricity would be provided to them from national grid at Rs60 per unit during night time or peak hours.

Under the gross metering system, a consumer is compensated at a fixed feed-in-tariff for total units of solar energy generated and exported to the grid (as measured by a unidirectional gross meter). One must pay retail supply tariff to the power distribution company for power consumed from the grid.

Total solar generation is measured by bi-directional meter, while total power import by unidirectional meter.

Science & Environment

IMF refuses to accept govt's macroeconomic framework – SUCH…

21 May 2024
by admin

With envisaging CPI-based inflation on the higher average rate of 12.7% for the next budget 2024-25, the International Monetary Fund (IMF) has asked Pakistan to share the draft of the under preparation investment policy and ensure transparency in working of the much-hyped Special Investment Facilitation Council (SIFC).

The Washington-based lender has also inquired about the tax exemptions offered by the government for the upcoming Special Economic Zones (SEZs) under the China-Pakistan Economic Corridor (CPEC).

On non-tax revenue target, the IMF wants maximisation of non-tax revenues as the proposal under consideration is to increase the Petroleum Development Levy (PDL) for increasing collection up to Rs1.08 trillion in the next fiscal year or slap Carbon levy to compensate the zero rate of GST on petroleum products.

The IMF has recommended slapping 18% GST on petrol and diesel along with PDL. Still, the government is exploring the option to impose a levy so that it should not become part of the federal divisible pool (FDP) under the NFC Award thus not going to be distributed with the provinces.

The visiting IMF team, which is a sort of an assessment mission, has not yet converted ongoing engagement into formal talks with Pakistani authorities for clinching a fresh bailout package under medium Extended Fund Facility (EFF).

Both sides possessed divergent views on the macroeconomic framework for the next fiscal budget for 2024-25. The IMF has refused to accept the macroeconomic framework of the Finance Ministry and so far pitched the macroeconomic framework for the next budget 2024-25 including real GDP growth rate at 3.5%t while the CPI based inflation was projected on higher side at 12.7%.

The Ministry of Finance has prepared a macroeconomic framework whereby the GDP growth was envisaged at 3.7 to 4% while inflation was kept on average in the range of 11 to 12%.

For the outgoing fiscal year 2023-24, the provision GDP growth figure may hover around 2 to 2.5% of GDP against the official target of 3.5%.

With finalisation of macroeconomic framework then the figures of nominal GDP would be worked out to firm up different figures including the revenues of the FBR, non-tax revenues and then expenditure side especially the largest heading of spending with debt servicing consuming the largest ticket item on expenditure head.

The IMF has projected the debt servicing of Rs9.787 trillion for the next budget for 2024-25. The Ministry of Finance has been working on the total debt servicing figures and it would depend upon the exact primary surplus being generated for the next budget for next fiscal year.

On the SIFC, Pakistani side informed the IMF assessment team that the new investment policy was under preparation which would be announced after conducting due deliberations. The IMF asks for transparency in the working of the SIFC. The IMF team inquired about the potential investment in different projects and especially asked for privatisation of PIA and other SOEs.

The IMF asks for tax exemption of upcoming four SEZs under CPEC. The Board of Investment high-ups informed the IMF team that there were over two dozen SEZs and four were being added in the list. The government is going to incentivise them with the similar tax incentives which are being offered to others. The upcoming investment policy with special focus on SEZs would be unveiled in due course of time. The IMF has sought a draft of the upcoming investment policy.

Science & Environment

FBR likely to be tasked to collect up to…

16 May 2024
by admin

With the possibility of fixing the annual tax collection target of the Federal Bureau of Revenue’s (FBR) ranging between Rs11.2 to Rs 11.5 trillion for the next budget, the International Monetary Fund (IMF) has given two options for implementing a taxation model from Australia or India to harmonise the taxation system.

The IMF has been consistently conveying to Pakistan’s tax authorities to consider the two options to overhaul the General Sales Tax (GST), including moving towards the Australian model of centralised administration and rate-setting, together with a strict revenue-sharing formula that is independently designed and enforced.

The second option is to move to an India-style Cash Value Accumulation Test (CVAT), where federal and provincial authorities share administration and the right to tax, and interstate trade is subject to a third federal rate. The IMF has asked the FBR to introduce a single turnover-based registration threshold of Rs8.5 million (equivalent to $30,000) for all businesses.

The sales tax is hampered by several serious shortcomings and structural deficiencies which in particular include: (1) the bifurcation of the tax base between federal and provinces creates serious gaps in taxation and is the source of trade neutrality concerns; (2) within the limited tax base of goods, the federal government has further narrowed its tax base by having a generous list of exempt and preferential tax supplies; (3) the federal sales tax system for goods is hard to administer and comply with, given the extraordinarily large number of applicable tax rates. One implication is that resources must be applied toward dispute resolution with taxpayers on the rate at which a particular supply ought to be taxed.

The IMF has estimated that if all its recommendations are implemented in Pakistan’s Goods and Services Tax (GST), it could yield additional revenues of Rs1,300 billion or 1.3% of Gross Domestic Product (GDP) on an annual basis. The IMF asked for eliminating all zero-rating (Fifth Schedule) except for exports. It also asked to bring all other goods to the standard rate of 18 percent of GST.

The lender recommends restricting exemptions (Sixth Schedule) to only the supply of residential property (except the first sale) and bringing all other goods to the standard rate. This will also raise fuel taxation in line with the average of comparators in the region and emerging economies as the Fund has asked to impose 18 percent GST on petrol and diesel.

Top official sources said the government was giving the option of levying a carbon levy so that the revenues do not become part of the NFC Award and the Centre could only utilise the fetched revenues as non-tax revenues.

The IMF has further asked to remove reduced rates under the Eighth Schedule and bring goods to the standard rate, except food staples and vital education and health items to be taxed at a single reduced rate of 10 percent.

It recommends removing all compliance-related distortionary tax policy changes. This includes eliminating the minimum taxes and surtaxes, besides removing the Ninth and Tenth Schedules. The estimated yield from rationalising Sales Tax expenditures is 1.3 percent of GDP.

On the tax collection target, the IMF has pitched the FBR’s tax target in the range of Rs11.2 trillion for the next budget depending upon the ability of the government to take additional revenue measures in the next finance bill 2024-25.

On the other hand, the IMF is also analysing Islamabad’s capacity and capability of the Shehbaz Sharif-led regime to deliver on key commitments and promises after which the visiting IMF team would consider engaging in formal negotiation for clinching the fresh bailout package. This scribe sent out questions to both the IMF and Pakistani officials but both sides did not respond.

Science & Environment

IMF raises concerns over uncontrolled circular debt – SUCH…

15 May 2024
by admin

The International Monetary Fund (IMF) has expressed strong concerns over the uncontrolled growth of circular debt in Pakistan.

The circular debt in the energy sector has surged by a staggering amount of Rs150 billion, raising alarms about its potential impact on the country’s economy.

There are apprehensions that the circular debt could reach a daunting Rs2.5 trillion by the end of the current fiscal year.

The IMF had set a target to control the circular debt at Rs 2.31 trillion for the ongoing fiscal year, urging an increase in tariffs for power and gas.

For the next financial year, the IMF seeks to increase tariffs for power and gas; however, negotiations are ongoing with the IMF mission with the officials of the Ministry of Energy.

Science & Environment

State Bank of Pakistan reserves rise over $9bn on…

9 May 2024
by admin

Foreign reserves held by the State Bank of Pakistan (SBP) have increased to $9.12 billion after the disbursement of the last tranche of $1.1 billion loan from the International Monetary Fund (IMF) under the short-term deal.

The SBP issued a statement on Thursday on the current position of the country’s liquid foreign reserves post-IMF inflow, confirming the central bank’s reserves stood at $9.12 billion in the week ending May 3.

Meanwhile, the net foreign reserves held by commercial banks stood at $5.3 billion, bringing the country’s total forex reserves to $14.45 billion — a nearly two-year high which was last recorded above $9 billion in mid-July 2022.

The SBP reserves increased by $1.114 billion to $9.1203 billion “mainly due to receipt of $1.1 billion from the global lender as final tranche” under the loan programme, the statement added.

Although, the central bank had received SDR 828 million (around $1.1 billion) from the global lender last month, the SBP made it clear that the amount would be reflected in the foreign exchange reserves for week ending on May 3.

The fresh tranche was the third and final of $3 billion Stand-By Arrangement (SBA) that the country reached with global lender last summer to avert default threat.

“Amount would be reflected in SBP’s foreign exchange reserves for week ending on May 3,” the central bank had said a day after the global lender approved the last tranche of Pakistan under the $3 billion Stand-By Arrangement (SBA).

Elaborating on the reserves’ position after the monetary policy meeting on May 2, the central bank’s governor, Jameel Ahmad, informed analysts that the forex deposits are currently in a comfortable position.

The SBP has paid off its commercial loans and now its debt profile consists of bilateral and multilateral loans, which has resulted in an improvement in the maturity profile of the debt, Ahmad said.

Despite weak financial inflows, the reduction in the current account deficit has enabled the central bank to make significant debt repayments, including the repayment of a $1 billion Eurobond, The News reported.

Meanwhile, Finance Minister Muhammad Aurangzeb also announced that a mission from the IMF is expected to arrive in Islamabad in mid-May to initiate talks for a new bailout.

He further said the country might have a staff-level agreement on the new programme by the start of July. The Fund and the government are already in talks for the new funding.

The country’s economy is struggling with a precarious balance of payments because it needs to repay nearly $24 billion in debt and interest over the next fiscal year—a sum that is significantly greater than the foreign currency reserves held by the central bank.