IMF drives hard bargain in ‘prior action’ talks

ISLAMABAD: With the proposed outlay of the federal budget of Rs9,500 billion, Pakistan and the IMF are engaged in the tough talks whereby the fund indicated placement of four to five major prior actions for the revival of the stalled $6 billion programme.

Pakistan and the IMF held virtual talks Wednesday night, as the Pakistani side shared salient features of the coming budget 2022-23. The IMF placed major prior actions, including taxation measures, to fetch Rs7.255 trillion in the next fiscal year.

The reform of Personal Income Tax was structural benchmark of IMF program at time of completion of 6th review under PTI led regime in last Feb 2022. It was agreed that PIT reforms would be introduced on occasion of FY 2023 budget. However, if govt deviates now from implementing PIT reforms then it would have to come up with alternate plan to fetch revenues up to the desired mark in the coming budget. 

However, the government showed reluctance to move ahead as desired by the IMF on the occasion of the completion of the sixth review in February 2022 under the PTI-led regime. The IMF side also expressed concern over the outstanding repayments to Chinese Independent Power Producers (IPPs) under the CPEC, as the PM approved release of Rs50 billion out of total outstanding dues of Rs300 billion so the fund is asking about the repayment schedule on this account.

The IMF has also asked about alternate plans to meet the FBR’s envisaged target of Rs7.255 trillion in the coming budget. The IMF has estimated that the FBR’s collection would be standing at Rs6,000 billion for the outgoing fiscal year and the FBR would have to collect Rs1,255 billion to meet the desired target in the next fiscal year. With nominal growth of 16.5 percent, the FBR’s collection would touch Rs6,700 billion so the IMF is inquiring about the plan for collecting the remaining Rs550 billion for touching the revenue collection of Rs7,255 billion for the next financial year. The IMF staff pointed out that the FBR’s collection of Rs6,000 billion also possessed GST on POL products to the tune of Rs300 billion till November 2021 so keeping in view the existing prices Rs300 billion should also be excluded from the purview of the FBR. The nontax revenue target has been envisaged at Rs2,000 billion.

On the expenditure side, the debt servicing has been envisaged at Rs4,000 to Rs4,200 billion for the next budget. The defence allocation has proposed Rs1,523 billion and a development budget of Rs800 billion, including Rs730 billion and a PPP mode of Rs70 billion for the next budget.

Pakistan and the IMF discussed the proposed increase in electricity tariff, subsidies on POL prices, and expected budget deficit for the coming financial year 2022-23. The government has envisaged Rs578 billion for subsidy on electricity as Rs500 billion subsidies proposed for FY2023, RLNG to get Rs20 billion subsidy and Rs50 billion subsidies for the industrial sector.

Pakistan and the IMF remained engaged on one of the toughest rounds of parleys for finalising budgetary figures for the upcoming budget amid lingering severe macroeconomic and fiscal crisis being faced by the country. This crisis-like situation aggravated owing to sky rocketing POL and commodities prices in the international market.

The government is providing a subsidy of around Rs9 per liter on petrol and Rs23 billion per liter on diesel on the basis of calculation of oil prices in international market standing at $107 per barrel. Now the POL prices in international market stands at $122 per barrel so the cost of subsidy is all set to further go up by $15 per barrel in line with new estimates for requirements in the coming financial year.