IMF allows Re1 cut in power tariff

ISLAMABAD: The International Monetary Fund (IMF) has approved a reduction in power tariff by Re1 per unit through revenues generated from a levy on Captive Power Plants (CPPs), while rejecting proposals to cut taxes on electricity bills.

The comprehensive package for tariff reduction — including revised agreements with Independent Power Producers (IPPs), cross-subsidies through increased petroleum levy, quarterly tariff adjustments, and raising Rs1,253 billion from commercial banks to address circular debt -- remains under discussion between IMF and Pakistani authorities.

IMF’s Resident Chief in Pakistan, Mahir Binici, in a brief chat with journalists, stated: “We have explicitly agreed to lower power tariff through generated resources from CPPs, so reduction in tariff will be Re1 per kilowatt hour for all consumers provided it does not have negative effect on budgetary side.” Sources indicated that the exact details of the proposed tariff reduction package would be finalised in the coming days.

Following the unsuccessful Tajir Dost Scheme (TDS), the Federal Board of Revenue (FBR) is working with the IMF to modify the scheme to encourage retailers to join the tax net starting next budget. The IMF maintains its Rs50 billion target for the current fiscal year, despite only Rs1.3 million collected so far under the TDS. The FBR claims to have collected approximately Rs38 billion from unregistered retailers through increased tax rates in the last budget.

An IMF technical mission would visit the FBR after Eid to discuss tax proposals for the next budget, with TDS modifications expected to be finalised in the coming weeks. “The incumbent high-ups in the FBR do not have ownership of the TDS because this scheme was drafted and implemented by the previous FBR team, so they are now fully convinced to bring changes in the scheme in the next budget 2025-26,” said the sources.

On Agriculture Income Tax (AIT), provincial assemblies have approved legislation effective retrospectively from January 1, 2025, with collections beginning July 1, 2025. The federal cabinet has approved changes to the Civil Services Act for the Asset Declaration Scheme, pending parliamentary approval, the sources added. The IMF has conditionally approved the release of $1.3 billion under its 28-month Resilience Sustainability Facility (RSF) for Pakistan, with disbursements tied to successful bi-annual reviews under the Extended Fund Facility (EFF) programme.

This development follows recent negotiations that yielded a staff-level agreement, during which IMF officials expressed particular concern about Pakistan’s persistently high core inflation rate, which continues to hover around 9 percent. The Fund emphasized that this sustained core inflation -- rather than temporary headline inflation figures -- necessitates maintaining tight monetary policy measures. The State Bank reported a $540 million decline in foreign exchange reserves as of March 21, 2025 due to debt repayments. The IMF has expressed concern over persistent core inflation around nine percent, suggesting continued tight monetary policy.

Meanwhile, the IMF has agreed to allow the FBR to abolish FED on the first transaction of property and now the FBR will take a decision to this effect. Earlier, the IMF refused to reduce withholding taxes for both sellers and purchasers of property.

In another development, speaking at the launch ceremony of the PM Digital Youth Hub, Prime Minister Shehbaz Sharif said that nations do not progress through IMF programmes, emphasizing that the stability that Pakistan requires has already been achieved. He reiterated that the $1 billion loan from the IMF was not Pakistan’s earned income but borrowed funds. He expressed the hope that this would be the country’s last IMF programme in history. “We must transform this debt-ridden existence into a life of dignity and honour through skill and hard work,” the premier said. “I will fight for the rights of the youth to my last breath. Farmers, industrialists and youths have to be made stronger economically. I will continue to serve country as Khadim (servant of nation),” the prime minister vowed.

The prime minister said through the IMF programme, the country had achieved stability, but this should be kept in mind that this was a loan ‘which we have to get rid of’. Shehbaz further pledged to reduce government expenditures while making substantial investments in training the younger generation, asserting that “we will dedicate billions and even trillions for their future”. He said that during his time as Punjab chief minister, he disbursed 400,000 laptops among the students who were high achievers in their schools and colleges. “This was the vision for which I worked hard,” he remarked.

The prime minister emphasized that the youth of Pakistan was a challenge as well as a great opportunity. “If we provide training of information technology and artificial intelligence (AI)-led modern technology, they can contribute a lot for the development and prosperity of Pakistan,” he said.

PM Youth Programme Chairman Rana Mashood Ahmed said that the government was opening up new opportunities to empower the youth. He said through PM Digital Hub, the youth would benefit in various sectors including sports, tourism, sports, IT, green economy and others. United Nations International Children Emergency Fund (Unicef) Officer In-charge Sharmeela Rasool said this was a platform of opportunity and hope. She said this programme was aimed at making the youth stronger and a productive people of the country.

UN Resident Coordinator Muhammad Yahya said the Digital Youth Hub was prepared to make youth capable of exploring their capabilities. This is the start of a journey of development and prosperity for Pakistan, he added.