Adviser to the Prime Minister on Finance Shaukat Tarin said on Monday that the government would ensure that the legislation pertaining to the State Bank of Pakistan's (SBP's) autonomy was passed, as has been agreed with the International Monetary Fund (IMF).

The legislation will give unprecedented autonomy to the State Bank of Pakistan to target inflation, rather than economic growth.

Pakistan is required to pass the legislation under the programme agreed with the IMF in July 2019, wherein the Fund had approved a 39-month $6bn arrangement for the country under its Extended Fund Facility (EFF) to support Islamabad’s economic reform programme. In March this year, the government had reached an agreement with the Fund on granting autonomy to the central bank, which was also approved by the IMF board.

Tarin's statement in this regard came hours after the IMF announced that a staff-level agreement had been reached with the government that would help revive the $6-billion funding programme stalled since April this year.

“We believe in it. God willing, we will get it (the legislation) passed,” Tarin said, addressing a press conference alongside Energy Minister Hammad Azhar in Islamabad.

He said the reforms would elaborate on the SBP's responsibilities, with one of its primary objectives being helping with price stability. He added that the central bank would independently make decisions regarding the monetary policy and exchange rate policy.

However, Tarin said, the IMF had intimated the government that reforms were likely to increase difficulties for lower-income groups. The IMF, he said, had suggested to give "targeted subsidies" to address this issue.

Talks with IMF

Pointing out that the agreement announced by the IMF was subject to approval by the Fund's Executive Board followed by the implementation of prior actions, he said the prior actions would include general sales tax reforms, increase in petroleum development levy by Rs4 every month so that it reached Rs30, passing of the legislation on SBP and audit of Covid-19 expenditures and sharing details about the beneficial ownership of coronavirus vaccines.

He added that the executive board's approval was likely to come in January 2022.

Tarin said the talks with the IMF had been resumed from where they had been left in March.

"In March, when we had taken $500 million from the IMF, we had promised to reduce or end tax exemptions worth Rs700 billion, increase electricity tariff by around Rs4.95 per unit and pass the legislation on SBP," he added.

He said, however, that he did not believe that increasing the tariff was the solution and had told the IMF that the legislation on the SBP also needed to be rationalised.

This, Tarin said, led to lengthy negotiations as the IMF pointed out that that "we have already taken $500 million and these conditions had been approved by the Fund's Executive Board."

The IMF insisted that steps be taken to implement policy decisions agreed with the financial institution in March, the adviser told media persons, adding that his team had still negotiated and managed to retain some tax exemptions in few sectors, including agriculture and food.

Moreover, he said, no tax was increased in terms of income tax.

Tarin further stated the financial institution had stressed the need for improvements in Pakistan's medium- and long-term policies, adding that the IMF representatives had, however, "accepted that we are on the right track".

The finance adviser said the IMF had asked the government to continue its tax reforms and underlined the need for further improvements in the power sector.

"While they (the IMF) acknowledged the growth of our external account, the Fund said there was still pressure on it."

Tarin further stated that the need for more transparency in the governance of state-owned enterprises and reforms for public finance was also highlighted in meetings with the IMF.

Moreover, he said, the IMF had asked the government to continue to evolve tax laws so that they facilitated businesses.

He added that the financial institutions had also asked the government "not to distort tax rates".

Energy tariff

Also speaking on the occasion, Energy Minister Hammad Azhar said that while no increase in the base tariff for electricity would be made in the foreseeable future, a minimal increase was likely after a few months.

This rise, however, would not affect the seasonal energy package for this winter and industrial energy tariff, under which incremental electricity was being supplied for Rs12.86 per unit, he said.