22pc reduction in POL products’ consumption: IMF sees Rs350bn levy shortfall

ISLAMABAD: The International Monetary Fund (IMF) has assessed the government would have to face a shortfall of Rs300-350 billion on account of Petroleum Development Levy (PDL) in the wake of a 22 percent reduction in consumption of POL products and its inability to slap a maximum levy on all POL products.

For the end of September 2022, performance conditions (PCs) and structural benchmark, Islamabad will have to seek at least two waivers — its inability to pass State Owned Enterprises (SOEs) law from the parliament and achieve Net International Reserves (NIR) envisaged for the deadline of September 30.

Pakistan and the IMF continued technical-level virtual talks without a finalised schedule to hold policy-level parleys for concluding the pending 9th Review and release of $1 billion tranche under the Extended Fund Facility (EFF).

The IMF side shared its assessment that out of the total federal tax and non-tax revenues of Rs9.4 trillion, the government would face a shortfall of Rs0.35 trillion in the wake of reduced consumption of POL products in the current fiscal year. The FBR’s envisaged target of Rs7.4 trillion so far remains intact, while there was an expected shortfall in non-tax revenue in the shape of PDL in the current fiscal year.

The government envisaged a PDL collection of Rs0.855 trillion. But, in the first quarter, the collection stood at just Rs0.47 trillion.

Now, the government has jacked up the maximum levy on MS petrol and HOBC up to Rs50 per liter. The revised projection showed the government could fetch Rs0.5 trillion maximum in the current fiscal year.

The government will have to revise the macroeconomic and fiscal framework for the current fiscal year in the aftermath of severe floods. The floods resulted in revising the GDP growth up to 2 percent and inflation hovering around 23 to 25 percent on an average.

Now with nominal growth ranging around 25 percent, all other targets will be changed, including tax-to-GDP ratio, fiscal deficit, current account deficit and others.

When contacted, a close confidant of the Minister for Finance told this scribe the IMF had sought details of flood-related expenditures going to be incurred in the current fiscal year. “We are working out details of expenditures going to be incurred on floods in the current fiscal year”, said the official. The IMF then would grant adjuster up to the extent of expenditures in achieving the envisaged budget deficit target for the current fiscal year, he added.

The Public Sector Development Programme (PSDP) will also be revised downward and some of the funds will be adjusted towards floods-related spending. It is estimated Rs300 to Rs350 billion will be utilised for the flood-related spending in the current fiscal year.

The official said, as of today, the government did not breach the primary surplus target. On the shortfall of PDL, he said the government would make efforts to bridge some part of its financing through increased SBP profits.

The government will have to seek a waiver on SOEs law as it could not be done within the envisaged deadline of September 30.

While the planned privatisation of SOEs could not take place due to heightened uncertainty, Pakistani authorities committed to IMF they would continue improving governance, transparency and efficiency, while limiting their fiscal risks.

The process of strengthening the legal and regulatory frameworks of SOEs is at an advanced stage. Benefiting from the Fund, Pakistani authorities submitted a new SOE law to the parliament which was adopted by the National Assembly in July 2022. And now it is awaiting Senate approval. However, it could not be done till September 30, 2022 deadline and it was missed out.