IMF increases petroleum levy to Rs 489 bn

ISLAMABAD: Without massive re-adjustments on macroeconomic and fiscal framework for evolving agreement with the IMF staff, the halted existing $6 billion Extended Fund Facility (EFF) program for Pakistan could not be revived.

Under the revised fiscal framework, the IMF has prepared strategy to bridge the gap of revenues through not fully passing on benefits of decreased POL prices into international market with consumers. It is now projected that the petroleum levy will go up by Rs 60 billion in next budget 2020-21 as there were earlier projection to fetch Rs 429 billion into pre-COVID-19 scenario but now the IMF jacked up petroleum levy projection to Rs 489 billion because of FBR’s inability to generate desired revenues and for meeting pressing fiscal requirements.

Now the IMF has decided to hold virtual meeting of its mission with Islamabad’s authorities ‘very soon’ in the aftermath of pandemic COVID-19 Virus in order to kick-start third review parleys just ahead of next budget for 2020-21. This review talks through virtual meetings is expected to take place by end of ongoing month or early May 2020. “The Extended Fund Facility (EFF) remains in place. The IMF team and Pakistani authorities continue to work closely together to bring second review to the IMF Board as soon as possible” the IMF’s Country Chief in Pakistan Sanchez Daban Teresa stated when The News asked her in this regard on Saturday.

Her statement indicates that the approval of second review and release of third tranche worth $450 million is on cards at anytime, however, some sources said that Islamabad would have to comply with certain crucial structural benchmarks such as submission of amendments into SBP act into the parliament. The IMF has already envisaged its macroeconomic and fiscal framework for remaining period of the EFF program as the Fund staff in its latest staff report envisaged FBR’s annual tax collection target with 31 percent increase from revised target of Rs 3908 billion in outgoing fiscal year 2019-20 to Rs 5101 billion in next budget 2020-21.

The IMF envisages FBR target of Rs 6100 billion in FY 2021-22 and Rs 6956 billion in FY 2022-23. The non tax revenue target has also been slashed downward from Rs 1319 billion to Rs 1287 billion for end June 2020. The non tax revenue target is envisaged at Rs 1150 billion in next budget for 2020-21 from earlier projected amount of Rs 1207 billionn.

The budget deficit is going to escalate further in the aftermath of COVID-19 Virus and it is projected to touch 9.3 percent of GDP against earlier estimates of 7.3 percent of GDP, indicating that it would be jacked up by Rs 1000 billion owing to shortfall in both tax and non tax revenues as well as overrun in expenditures. The budget deficit will be hovering around 6.6 percent of GDP in next budget 2020-21 against earlier projection of 5.8 percent of GDP, said the IMF report. However, the budget deficit will be curtailed at 5.1 percent of GDP for 2021-22 under the IMF program.

On macroeconomic front, the IMF staff projected GDP growth shrinking into negative and might touch -1.5 percent of GDP for the current fiscal year. However, the Planning Commission and some independent economists do not agree to these projections and argued that the GDP growth rate would be hovering around 2 to 2.5 percent for the current financial year. The IMF has projected that growth rate will turn into positive and will be standing at 2 percent of GDP in FY 2020-21 against earlier projection of 3 percent.