After acknowledging the breach of Pakistans financial data integrity, the government has secured approval of the executive board of the International Monetary Fund [IMF] for the disbursement of $500 million and revival of the fund program after a year.
This followed commitments with the board to generate more than Rs700 billion in additional revenues through general sales tax and income tax in the coming budget, increase power tariff by over 34 percent (about Rs900bn), and withdraw Rs140bn worth of corporate income taxes through the promulgation of two ordinances which have not been published at home yet.
“Reaching the FY 2022 fiscal targets rests on the reform of both general sales tax and personal income taxation,” said the IMF board. A government official said budget targets for next year had already been finalised with the IMF.
“Vigorously following through with the updated IFI-supported circular debt management plan and enactment of Nepra amendment act would help restore financial viability through management improvements, cost reductions, regular tariff adjustments and better targeting subsidies,” he added.
Institutional, technical shortcomings giving rise to inaccurate information being address, fund assured.
This includes a power tariff increase of Rs1.39pc per unit in June this year followed by Rs2.21 per unit raise in July and another Rs1.76 per unit hike in July 2022, coupled with withdrawal of subsidies for consumers with monthly consumption of 201-300 unit, the official explained.
The executive board “completed today the second through fifth reviews of the Extended Arrangement under the Extended Fund Facility (EFF) for Pakistan,” said an IMF statement, adding that the “decision allows for an immediate disbursement of SDR 350 million ($500m), bringing total purchases for budget support under the arrangement to about $2 billion”.
The Fund said the government’s reporting in Dec 2019 on data relating to sovereign guarantees was inaccurate on the basis of which it had claimed to have met performance criteria for $452m disbursements. This was later noted to be under-reported to an extent of Rs357bn (0.9pc of GDP). “The IMF’s transparency policy requires publication of misreporting related to use of Fund resources, including Executive Board findings in these matters,” the IMF stated.