Ester Perez, a country representative for the International Monetary Fund (IMF), described the negotiations with the Pakistani government regarding the ninth review as “productive.”
Discussions have made it possible to update the macroeconomic forecast following the floods and thoroughly assess the fiscal, monetary, exchange rate, and energy policies implemented since the conclusion of the combined seventh and eighth assessments, according to Perez.
The head of the IMF in Pakistan stated that the international lender is eager to continue discussions about policies that effectively address the need for help and recovery following the floods while also protecting fiscal and external sustainability given the available funding.
On the other hand, a senior member of the Pakistani administration told that the IMF negotiations were doing well and that a staff-level agreement will likely be reached soon.
Pakistan seeking budget deficit increase
Sources, however, informed the publication that Pakistan has asked the lender to permit an adjustment of Rs320 billion in the budget deficit for the current fiscal year 2022–2023 because the said amount was the spending for flood rescue and relief.
The government is considering imposing a flood levy in the current fiscal year to increase its tax collection objective, and many options are being considered for finalizing its exact modalities.
Despite increasing inflation and a slow development trajectory, the political leadership has agreed in principle to implement more taxation measures, but they want to do so without placing an additional burden on the average person.
“We are thinking of charging a flood levy to people in higher income categories who have been making large gains lately. Although we haven’t finalized the details, the highest officials of the government are currently actively considering it, a government official told The News.
The public sector development programme (PSDP), as well as the annual development plans (ADPs) of the provincial governments, were used to aid in the relief and recovery efforts during the current fiscal year, and the government has informed the IMF of these expenditures. The budget deficit objective, which was previously set at 4.9% of GDP on the eve of the budget for 2022–23, will now be increased using the adjuster.
Disagreements remained regarding tax collection targets, non-starter energy reforms such as raising the gas tariff, rising circular debt, and expenditure overruns, making it more difficult to come to a staff-level agreement for the conclusion of the 9th review under the $7 billion Extended Fund Facility (EFF).
The government’s decision to maintain the same pricing led to an increase in the gas sector’s circular debt, and the IMF had requested that Pakistan increase the gas tariff as a result.
No development was seen in the power industry, despite the government’s attempts to improve the gas sector. The monster of circular debt in the power sector reached Rs2.4 trillion, and all monthly and quarterly reduction targets set with the IMF were not met. The total Circular Debt in the current fiscal year would increase by Rs200 billion due to the subsidy on tube wells alone.
The Kissan Package and the government’s plan to reduce power and gas tariffs for five export-oriented sectors and the agricultural sector both drew criticism from the IMF.
The Ministry of Finance and Ministry of Power continue to argue about whether the decision to delay paying electricity bills was made as a subsidy or not.
According to the Finance Ministry, the payment was postponed with the expectation that it would be recovered during the winter. However, there is a disagreement between the two ministries over interpretation.
In light of import tightness and the slowing of the economy, the IMF also determined that the FBR would not be able to reach its projected annual tax collection target of Rs7.47 trillion and requested a revised projection.
The Fund staff also wanted to know why the nominal growth did not appear in FBR’s collection and when it increased to between 25% and 27%. The IMF predicted that the tax-to-GDP ratio would decrease in the current fiscal year even if the FBR met its yearly target of Rs7.47 trillion.
However, the FBR argued in front of the IMF that their collection was on track and that they would be able to hit their goal.
However, due to litigation, the tax collection may be delayed. Because the courts have currently issued stay orders, it is possible that stuck-up revenues of Rs250 billion will emerge in the coming months.
The FBR has sent appeals to the chief justice of Pakistan requesting an early resolution of the ongoing court disputes involving billions of rupees.