Pakistan, IMF trying to reconcile differences on circular debt, tax collection

ISLAMABAD: Pakistan and the IMF are struggling to reconcile differences on exact size of circular debt, demand of further hike in electricity tariff and achieving tax collection in the remaining period of current fiscal year.

Despite positive vibes coming out from both sides with regard to ongoing parleys between Pakistan and the visiting IMF review mission, top official sources told The News on Tuesday that the IMF was still asking the authorities for raising power tariff in the range of over 30 paisa per unit for the second quarter and then work out for third quarter (Jan-March) in order to curtail the piling up of circular debt.

Actually, differences persisted over the exact impact of improvement and then calculation over the piling up of circular debt after payment of subsidy amount from the budgetary resources. This working calculates the exact requirement of raising of power tariff to bridge this gap. The fuel price adjustment for November was already done by Nepra to the tune of Rs1.66 per unit, so Pakistani authorities were reluctant to go ahead with any further hike in power tariff.

“Our economy is already heading towards cost push inflationary pressure so any further hike will have much negative impact on rising CPI-based inflation in December 2019,” said official sources.

The second lingering controversy between the IMF and FBR side is calculating the revenue collection requirement for the second quarter as the FBR had collected Rs963.5 billion against the fixed target of Rs1,071 billion thus facing shortfall of Rs108 billion. Now the FBR will have to collect Rs1,403.5 billion in Oct-Dec period of the current fiscal year to match the collection with the desired figure of Rs2,367 billion on December 31, 2019. The FBR has been assigned to collect Rs5,503 billion for the current fiscal year 2019-20 against Rs3,829 billion for the last fiscal year.

Talking to reporters outside the Finance Ministry, Adviser to PM on Finance Dr Abdul Hafeez Shaikh said the IMF team was visiting Pakistan for reviewing progress made during the first quarter (July-Sept) of the current fiscal as budget deficit and current account deficit had improved. He said tax revenue would have to be mobilised while expenditures were already curtailed. The country’s ranking on Ease of Doing Business (EODB) improved to give confidence to investors, he added.

Meanwhile, the Ministry of Finance has issued an official statement according to which Abdul Hafeez Shaikh said the government is focused on implementation of the IMF programme.

“The containment of current and fiscal deficits and stabilisation of exchange rate are indicative of the success of government efforts to put the economy on the long-term growth track,” he said while talking to the IMF team led by Ramirez Rigo Ernesto who called on the adviser and his team at the Finance Division.

Governor State Bank of Pakistan (SBP) Reza Baqir, Secretary Finance Naveed Kamran Baloch, Chairman FBR Shabbar Zaidi, Special Secretary Finance Omar Hamid Khan and other senior officials of the Finance Division and the local IMF officials were also present.

Abdul Hafeez Shaikh told the visiting IMF delegation that Pakistan enjoyed a very cordial relationship with the IMF and it had been further strengthened during his recent visit to Washington where productive meetings culminating in fruitful discussions were held with the senior IMF management. He said Pakistan valued the IMF support and financial assistance and the prime minister was personally overseeing and monitoring the progress achieved in various sectors of the economy.

Ramirez Rigo Ernesto appreciated the positive results being produced by the policies and strategies put in place by the government to remove imbalances in the economy. He said the volatility in the exchange rate had been reduced while successes have also been achieved in other areas, especially on the fiscal front, which indicated the government was moving in the right direction.

He said the IMF Mission was looking forward to have a meaningful and productive review by aiming at a forward-looking approach with focus on the adjustments required till March, especially in the power sector and funding from various bilateral and multilateral sources for boosting Pakistan foreign exchange.