• Says MEFP draft received, virtual talks to continue • Taxes to be introduced within days • Diesel rate to go up by Rs10 per litre in next two months

ISLAMABAD: Finance Minister Ishaq Dar on Friday announced the government would promptly introduce a mini-budget to generate Rs170 billion additional revenues in four months (about Rs510bn on annualised basis) and reform the power and gas sectors including through withdrawal of unbudgeted subsidies and tariff incre­ases to stop flow of circular debt as prior actions agreed with the Inter­national Monetary Fund (IMF) to secure early disbursement of about $1.2bn tranche.

Speaking at a hurriedly called news conference shortly after the IMF issued a bland end-of-mission statement, the minister said all matters with the fund had been settled in the final round held on Thursday and the mutually agreed terms were taken to the prime minister as a customary courtesy call-on by the IMF mission chief and resident representative through a video-link.

“We have positively completed everything and there is now no confusion on anything,” Mr Dar said, adding the government on Friday morning also received from the IMF the draft Memorandum of Economic & Fiscal Policies (MEFP) that the government would go through this weekend and begin virtual meeting on it on coming Monday to take the process forward.

Mr Dar explained that under the standard procedure agreement on MEFP is followed by signing of letter of intent (LOI) and the staff-level agreement is announced and then taken to the executive board of the meeting for approval and disbursements.

“This is standard process which cannot be shortened and hopefully they would not unnecessarily extend it,” the minister said, explaining that once this process was completed Pakistan would be entitled to $894 statutory drawing rights of the IMF with a calculated value of $1.2bn.

“This will obviously be released to Pakistan once the executive board approves it,” he added.

Diesel rate to go up by Rs10 per litre in next two months

In its brief statement, the IMF welcomed ‘the Prime Minister’s commitment to implement policies needed to safeguard macroeconomic stability’ and confirmed “considerable progress” to have been achieved on policy measures to address domestic and external imbalances“.

Like its pre-visit statement, the IMF reiterated the key priorities as strengthening the fiscal position with permanent revenue measures and reduction in untargeted subsidies, while scaling up social protection to help the most vulnerable and those affected by the floods; allowing the exchange rate to be market determined to gradually eliminate the foreign exchange shortage; and enhancing energy provision by preventing further accumulation of circular debt and ensuring the viability of the energy sector.

“Timely and decisive imp lementation of these policies along with resolute financial support from official partners are critical for Pakistan to successfully regain macroeconomic stability and advance its sustainable development,” the IMF said. It also confirmed “virtual discussions will continue in the coming days to finalise the implementation details of these policies”.

‘Indirect impact’ on common man

The finance minister said that under the agreed fiscal package, the government would have to impose Rs170bn taxes. “Our effort is that no tax should be imposed that directly affect the poor or burden the common man, although it would indirectly impact them,” he said and then confirmed that normal rate of sales tax would be “tinkered” with.

That would mean the commercial GST rate would increase from existing 17pc to 18pc on top of higher rates on sugary drinks.

He said the taxation measures to be introduced within days through an ordinance or money bill depending on the parliamentary sessions would be “one-off”, but when questioned if it would be reverted to 17pc by fiscal year end, the minister remarked it “does not happen like that”.

Mr Dar, however, made it clear that the government did not accept imposition of GST on petroleum products and the IMF mission conceded, but they reminded that while PDL on petrol had reached Rs50 per litre peak, the “remaining Rs10 on HSD has to be increased in two instalments of Rs5per litre each on the first of March and April, respectively. We are committed to that and will honour that when the time comes”.

Also, in the energy sector, reforms agreed by the cabinet would be implemented under which the flow of circular debt would be stopped both in electricity and gas sector and minimise untargeted subsidies.

“This is in the interest of Pakistan. Apart from sovereign commitments, it is our duty to fix these problems in the economy,” he said, adding that similar flow of about Rs260bn to Rs270bn circular debt to gas sector would be brought to zero. “This is also an understanding and agreement” with the IMF.

Subsequently, he said, the circular debt stock would be addressed though that is a separate process, which the government would follow in due course. He hinted that about Rs650bn revenue gap in power sector would be addressed through a combination of tariff increase or parked in circular debt and fiscal deficit.

“This would not be Rs675bn that you people [journalists] have been writing about,” he said. The power sector produced about Rs3trillion worth of electricity each year, but the recovery was only Rs1.8tr, leaving a gap about Rs1.2tr, he explained.

About Rs550bn is financed through budget while the remaining amount of Rs650bn has to be “reformed”, he said but hastened to add that the government to also had to protect consumers on the lifeline.

On top of that, funding for the vulnerable through Benazir Income Support Programme (BISP) would be increased to Rs400bn from existing Rs360bn under the understanding reached with the IMF to counter the impact of inflation till June 30, 2023.

He said it should be kept in mind that the extended fund facility was agreed to and signed by the Imran Khan government in 2019 which was suspended or delayed for a few times and the PDM government led by Prime Minister Shehbaz Sharif was now implementing as sovereign commitment. That is why the IMF has also mentioned the prime minister’s political commitment to honour sovereign agreement. This is the cost of last five years of misgovernance and incompetence that led to massive increase in debt burden and resultant debt servicing cost and a flood of inflation.

Track record

Responding to a question on low foreign exchange reserves with the central bank that stood at around $2.9bn, the minister said the commitments from friendly countries would materialize once the staff-level agreement was reached.

“There is nothing to worry about. Please also keep our track record in mind and not be disheartened,” he said, recalling that Pakistan had recovered from as low as $414 million reserves after 1998 nuclear tests related sanctions when imports were $9bn and all liabilities were also met.

“We are managing this with the support of the State Bank of Pakistan and have prioritised imports while also repaying about $3bn loans in recent days to a friendly country and commercial banks of another country. All those loans are in the process of rollover once the IMF programme is revived as has been the practice in the past. Our negotiations on that account are in the pipeline and perhaps the IMF agreement was awaited to materialize them”, because it was not clear to them in which direction Pakistan was going, the minister explained.

He said the availability of greenback and imports would “get back to business as usual once we receive $5bn to $6bn in coming days”.

The minister apparently felt agitated when asked if it was because of the trust deficit on part of the finance ministry that the IMF had to take Prime Minister’s commitment for policy actions and quote it in its end-of-mission statement when he said, “does it matter? Do I care”, but then gained composure saying the government was led by premier.

He said the loss of Pakistan’s credibility and trust deficit was “also a factor”, but it was because of the previous PTI government that not only dishonoured sovereign commitments but also reversed them in the face of looming no-confidence move last year.

“That massively damaged Pakistan’s reputation and credibility”, he asserted.

Published in Dawn, February 11th, 2023