Letter of Intent from IMF ‘anytime soon’

ISLAMABAD: Pakistan’s deal with the International Monetary Fund (IMF) to release two tranches worth $1.17 billion under a stalled loan facility is trudging closer to the finish line as an agreement on the Letter of Intent (LoI) appears likely before the weekend, officials said on Wednesday.

Senior officials at the Finance Ministry said the Fund was likely to send an LoI (Letter of Intent) “anytime soon as the IMF’s mission chief had to rush to Australia for some personal engagement”. “We may receive LoI within the next 24 hours and then it will be jointly signed by the Minister for Finance Miftah Ismail and Governor SBP.”

The finance minister, when contacted, said, “the LoI would be dispatched soon for reviving the IMF programme by the end of the ongoing month”.

The IMF and Pakistan had reached a staff-level agreement in the second week of July. The staff-level agreement would be reviewed by the Fund’s board at a meeting due on August 24. The board would also consider adding $1 billion to a $6 billion programme agreed in 2019.

An official said the government was also forced to present “a mini-budget for reviving the suspended IMF programme” as the Pakistan Democratic Movement (PDM) led government snapped under the retailers’ pressure and waived their fixed tax, which was supposed to be collected through electricity bill.

“A mini-budget is on cards as the government has decided to promulgate an ordinance for taking additional taxation measures to fetch Rs18 billion into the national kitty,” the official said.

Different sectors are under consideration for bringing additional taxes in order to satisfy the IMF as the government may slap more taxes on cigarettes, tobacco leafs and fertiliser, etc. Tax rates on cigarettes and the processing of tobacco leaf may be jacked up through a Presidential Ordinance.

“The government has decided in principle to fetch additional Rs12 billion through tobacco sector by increasing FED rates and another Rs6 billion through the imposition of withholding tax on Green Leaf Threshing Process (GLTP) of tobacco as withholding tax in adjustable mode will be increased,” another official said.

It is yet to be seen how the government will bring changes in the Finance Act 2022 through Presidential Ordinance, which will fetch Rs27 billion from retailers.

The finance minister Miftah also confirmed a government plan to impose additional taxes. “Different proposals are under consideration and a decision would be taken by the prime minister soon,” he told The News.

A source, however, said the government might restore tax exemption on perks and privileges enjoyed by Pakistani diplomats through the proposed ordinance. “It will require a cost of Rs1.5 billion on the revenue side,” the source said.

Independent economists say there is more gap on the fiscal front as according to their estimates the government waived Rs31 billion tax on retailers and provided Rs30 billion supplementary grant to PSO (Pakistan State Oil) to avoid default.