IMF-govt talks give birth to ‘mini-budget’

ISLAMABAD: Finance Minister Ishaq Dar said on Friday that the government has agreed to impose Rs170 billion in additional taxes, halt the flow of circular debt in the power sector and reduce the circular debt of the gas sector to zero, as well as withdraw untargeted subsidies as prior actions during a 10-day extensive discussion with the International Monetary Fund (IMF) programme staff-level team on 9th review.

Addressing a news conference here Friday along with Minister of State for Finance Aisha Ghaus Pasha, the SAPM on Finance, and others, he stated after reaching an agreement on broad contours of the review, draft memorandum of economic and financial policies (MEFP) is provided to Pakistan and he would go through it over the weekend ahead of virtual meeting with the Fund on Monday.

He added that the final round ended on Thursday and all the matters were agreed following the 10-day extensive discussion with the Fund on power, gas, fiscal, monetary, etc., and meetings were attended by the SBP governor, as well as, relevant heads of Divisions, the FBR, the BISP, power, and others, and subsequently, Fund’s courtesy call was also arranged with Prime Minister Shehbaz Sharif through Zoom meeting, wherein, it was reiterated to implement the agreed reforms.

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He said that the prior actions agreed with the Fund included;(i) fiscal measures of Rs170 billion;(ii) reforms in the energy sector with the main thrust to stop the flow of circular debt; (iii) minimising untargeted subsidies; and (iv) flow of circular debt in the gas sector to be reduced to zero from Rs260-270 billion.

Dar said that the fiscal measure would be introduced through Ordinance or bill in the Parliament. He added that the commitment to petroleum levy has almost been fulfilled except Rs10 per litre increase on diesel – to Rs50 from Rs40 – and this would be increased in two installments of Rs5 each from March and April, adding that sales tax on petroleum products was not agreed with the Fund.

The finance minister said that Pakistan would be disbursed US$ 1.2 billion once the review is approved by the Executive Board meeting of the IMF.

Replying to a question, the finance minister said that the lifeline consumers would not be burdened through electricity tariff adjustment. He said that reforms in some sectors are in the interest of the country and added that the power sector is one of them whose recovery is Rs1,800 billion against the generation cost of Rs3,000 billion. He said that out of this gap, Rs550 billion is included as a subsidy in the budget and the remaining Rs650 billion would have to be parked either in the fiscal deficit or somewhere else.

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The finance minister said that the government would increase the BISP allocation by Rs40 billion to Rs400 billion for the vulnerable from the existing Rs360 billion. He said that the government is implementing the Fund programme signed by the previous government in 2019. He said that debt servicing has been increased from Rs1750 billion to Rs5000 billion during the last five years and stated the mismanagement of the previous government was responsible for the prevailing situation.

When asked about foreign exchange sliding below $3 billion, Dar stated that commitments from friendly countries would materialise besides, the roll-over of recently made payments once the programme is finalised. Additionally, he said that the privatisation process of power plants, Haveli Bahadur Shah and Balloki, is on track.

The finance minister accused the previous government of the Pakistan Tehreek-e-Insaf (PTI) of creating a credibility issue by reversing the measures, which were agreed with the IMF when the vote of no confidence was moved against it.

Copyright Business Recorder, 2023