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May 16, 2019

To comply with IMF conditions: 15pc hike in power tariff on the cards

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May 16, 2019

ISLAMABAD: Pakistan and the IMF have agreed on four prior actions including notifying for hiking electricity tariff by around 15 percent and establishment of an independent committee for determination of market based flexible exchange rate, The News has learnt.

After implementing all prior actions agreed with the IMF staff, it will pave the way for consideration of Pakistan’s request for approval of $6 billion bailout package by the Fund’s Executive Board, probably by end June or early July this year.

Other prior actions agreed with the IMF included taxation measures and reforms in the FBR undertaken through the upcoming Finance Bill 2019 on the eve of the budget for 2019-20 and policy rate hike considered by the Monetary Policy Committee (MPC) in its upcoming meeting, expected to be held anytime within this month. It is under consideration to convene MPC early and it may meet next week to consider hike in discount rate at a time when the inflation has come down to 8.4 percent on monthly basis. The core inflation (non-food and non-energy) has also reduced and stood at almost 7 percent in April 2019 compared to same level of 7 percent in the same month of last year 2018. However, the policy rate has gone up by over 400 basis points in last one year despite this fact that the core inflation stood at same levels.

It’s premature to judge the findings of the upcoming MPC but experts argued that the inflationary pressures exist owing to hike in POL products and other possibility of hiking taxation and other prices so the upcoming meeting might consider hike in discount rate up to 200 basis points.

On market based exchange mechanism, Pakistan and the IMF agreed for establishment of an independent committee comprising SBP officials and some independent economist to review and determine exchange rate on the basis of targeting inflation in line with real effective exchange rate (REER). Some kind of committee is on the cards and the SBP will move ahead on it in coming days.

However, officials both at Ministry of Finance and SBP are tightlipped and no one is ready to say anything on the record. The upcoming budget for 2019-20 especially in the context of taxation measures, abolishing of tax exemption and withdrawal of subsidies will be important prior action under the IMF programme. The government has agreed to take additional taxation measures of Rs600 to Rs700 billion through raising taxation rates and abolishing of tax exemptions.

The power tariff notification for meaningful adjustment in the tariff differential subsidies for high end consumers is another prior action on which the government will have to comply with before the Fund’s consideration of Pakistan’s request for next bailout package.

However, when Finance Ministry’s Spokesman and Adviser Dr Khaqan Najeeb was asked about hike in electricity tariff by 25 percent, he said that no such proposal was under consideration at the moment.

The sources said that the power tariff might be hiked in two phases but the first notification to this effect would be implemented before the Fund’s executive board meeting. Pakistan and the IMF also agreed for strengthening regulators such as Nepra and Ogra and in this regard it was under consideration to allow Nepra to determine fuel adjustments that would stand notified. However, the baseline tariff will continue to be notified by the government after determination made by the Nepra.

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