• Fund’s mission set to issue statement after getting clearance from headquarters
• Finance minister shares Pakistan’s plans for three-year loan programme
• Government finalises improved tax regime for real estate, retail sectors

ISLAMABAD: The government and the Interna­tional Monetary Fund (IMF) concluded the staff-level talks on Tuesday for the final review of the short-term loan agreement, paving the way for Islamabad to access the final tranche of around $1.1 billion.

Finance Minister Muhammad Aurangzeb and the IMF mission chief in Pakistan, Nathan Porter, led their respective teams at the final customary concluding session on Tuesday afternoon, sources said. Both sides remained tight-lipped because of IMF communication protocols.

Soon after the wrap-up meeting, ambassadors of the United States and China to Pakistan — Don­ald Blome and Jiang Zai­dong, — called on the finance minister and discussed “matters of mutual interests” and bilateral relations.

The sources said the IMF mission that was flying back after a farewell dinner would soon issue an “end of mission” statement after clearance from the IMF headquarters. The SLA would lead to the disbursement of remaining funds to Pakistan, subject to formal approval by the IMF’s executive board.

The two sides would coordinate for the board meeting to take up Pakistan’s case no later than the IMF and World Bank’s spring meetings starting April 15, when Pakistan would also be formally taking up its request for another bailout package under the IMF’s Extended Fund Facility.

The sources said the two sides reached a consensus on the Memorandum of Economic and Financial Policies (MEFP) and related worksheets involving performance data and future projections relating to macroeconomic indicators.

Mr Aurangzeb broadly shared Pakistan’s plans with Mr Porter for another loan programme of about 36 to 39 months, for which a formal request would be made in due course.

The sources said the two were of the view that the programme’s objective of achieving 0.4pc of primary deficit during the current fiscal year would remain sacrosanct. For this, the provinces extended an assurance that they would meet their respective budgetary projection for providing cash surpluses without any deviation.

The two sides have agreed on a set of contingency measures to meet gaps should there be any slippages in data for the period ending March 31. Pakistan has given the IMF an understanding of the Federal Board of Revenue’s (FBR) digitisation programme for a quantum jump in revenue collection.

It was also clear that reduced energy tariff for the industrial sector pitched for the Special Investment Facilitation Council (SIFC) was a no-go area, at least during the remainder of the current fiscal year.

The government has also finalised an improved tax system for the real estate and retail sectors. For this and to effectively net the retail and wholesale sectors, the related legislation and subordinate legislation would be made part of the upcoming federal budget and in a harmonised form with provinces.

The retailers would also be brought into the tax net through compulsory registration, and formal tax collections would start flowing with the implementation of next year’s finance bill.

Besides, the tax rates for non-filers in real estate transactions would be substantially and prohibitively increased. All real estate societies and housing authorities would be registered with the revenue authorities concerned, and their transactions would be monitored on the pattern of the point-of-sale (POS) network of the retail sector and through banking instruments.

The two sides also discussed increasing the rate of the petroleum development levy on the sale of major oil products from the existing rate of Rs60 per litre. The upper limit of Rs100 may be incorporated in the Finance Bill 2025, instead of any consideration for GST, which mostly goes to the provinces.

Privatising state-owned enterprises (SOEs) would be the major theme of the next IMF programme, the sources said. Another central commitment would be the freeze on electricity and gas sector circular debt at any cost and their gradual reduction.

For both these sectors, the government would adhere strictly to the legal and regulatory stipulation, i.e. biannual gas price adjustments and monthly, quarterly and annual tariff adjustments in the power sector without fail. Violations of these schedules have been considered the major reason for revenue slippages and liquidity crisis of the entire energy sector chain.

The base electricity tariff would be revised upward with effect from July 1, 2024, in a manner that consumers face predictable monthly fuel cost and quarterly adjustments and start scaling down the outstanding circular debt that stood over Rs3 trillion, including Rs2.3tr of fresh stock and over Rs700bn parked in the Power Holding Ltd.

Likewise, the consumer-end gas tariff would also be revised upward with effect from July 1, 2024, for which the regulatory process would be completed well ahead of the deadline. The two sides also have agreed to improved legislation and coordination on Anti-Money Laundering (AML) and the Combating the Financing of Terror (CFT) framework and a detailed mechanism for access to bank accounts and tax data of senior government officers.

An official statement quoted Finance Minister Aurangzeb expressing gratitude to the Chinese leadership for their support to Pakistan in various sectors, particularly highlighting the rollover of State Administration of Foreign Exchange (SAFE) deposits and the refinancing of commercial loans, thus contributing to Pakistan’s economic stability.

Mr Aurangzeb further emphasised the paramount importance of the China-Pakistan Economic Corridor (CPEC) in Pakistan’s growth strategy and overall economic recovery.

“Both sides agreed to advance their collaboration in various sectors, including industrial zones, agriculture, mineral and mining, as well as renewable energy. It was discussed that the next phase of CPEC would focus on monetising gains made during the first phase,” the statement said.

In his meeting with Donald Blome, the finance minister elaborated on the government’s foremost priority of bringing reforms in the FBR to prevent revenue leakages through end-to-end digitisation, enhancing the SOE reforms, strengthening social protection measures, improving public financial management, implementing energy sector reforms, removing distortionary subsidies, and fostering private sector-led economic growth.

Published in Dawn, March 20th, 2024