Tax adjustments, hike in power tariff to fetch Rs170b extra

ISLAMABAD: Pakistan has assured the IMF of notifying Nepra’s determined tariff of hiking electricity rates by Rs1.27 per unit soon, taking additional taxation measures to fetch Rs170 billion and placing flexible exchange rate with gradual adjustments of rupee against dollar in order to strike staff level agreement with the Fund for seeking fresh bailout package, The News has learnt.

Pakistan will have to request to the IMF for maximum quota facility of 435 percent equivalent to over $12 billion as Islamabad had to pay back outstanding liabilities of around $6.4 billion over next three years so net financing availability under 36 month facility will be standing between $6 to $7 billion.

Differences still persisted over pace of adjustments on fiscal and monetary fronts even after holding video conference between Pakistan and the IMF on Wednesday night, however, both sides agreed to continue more round of parleys in weeks ahead.

An IMF mission may visit Islamabad after mid of next month in a fresh bid to evolve consensus for agreement on Memorandum of Economic and Financial Policies (MEFP) which will pave the way for signing Letter of Intent (LoI) by Federal Minister for Finance Asad Umar and SBP Governor Tariq Bajwa.

Pakistan and the IMF were negotiating envisaging GDP growth rate at 4 percent for the current fiscal year, inflation at 9 percent and slashing both the budget deficit and current account deficit significantly during the current fiscal year. The reduction of twin deficits require more accelerated pace of adjustments on fiscal and monetary fronts, the sources quoted the IMF team as saying.

IMF’s Resident Chief in Pakistan Teresa Daban Sanchez was asked about possibility of visiting IMF mission to Islamabad next month, she replied that dialogue and discussions were going on between the two sides and it was not yet clear 100 percent whether the visit of an IMF mission would be necessary, however, she added if needed they could mobilise and dispatch Fund mission quickly.

She said that the exchange of documents, tables and emails is standard practice between the two sides. The objective continues to be achieved for evolving understanding towards a staff level agreement. The Christmas and other holidays is not necessarily an impediment for dialogue and discussions would continue, she noted.

However, the sources said that the government gave assurances to the IMF on Wednesday night that the power tariff determined by Nepra would be notified without any delay.

When contacted to Adviser to Finance Ministry Dr Khaqan Najeeb who is also official spokesman, he confirmed to The News that the government would notify hike in electricity tariff soon in accordance with the determination of Nepra.

To another query regarding Wednesday night video conference parleys with the IMF team led by Harald Finger, he said that both sides held fruitful discussions on fiscal, structural, monetary and energy sides of the economy and both sides decided to continue parleys for evolving consensus.

On fiscal measures, the sources in the FBR said that the government would have to introduce mini-budget again by proposing additional revenue measures including hike in tax rates on POL products, partial reversal of relief for salaried class, hiking tax rates for cigarettes by considering to abolish third tier taxation system and increasing tax rates for imported and manufactured cars. The IMF has asked the government to take additional measures for collecting Rs200 billion more but the FBR was considering for proposing additional Rs170 billion through different proposals in the fresh finance bill going to be tabled in Parliament next month before the visit of IMF team.

The IMF, the sources said, showed its pleasure over the SBP move to jack up discount rate by 150 basis points in one go instead of 1 percent but also asked for placing complete flexible exchange rate by doing away with managed exchange rate.

The government and the SBP will have to devise roadmap for slashing the piled up liability of central bank borrowing that had peaked to Rs5,500 billion so the government would have to erase this liability by slashing in gradual manner under the devised roadmap.

Another bone of contention, the sources said, was on the front of exchange rate as the both the IMF and Pakistani side were largely agreed that the flawed exchange rate played havoc that resulted into evaporation of foreign currency reserves in period of just two years.