• Mission set to fly out tomorrow without announcing staff level agreement
• Federal budget expected on June 7

ISLAMABAD: Pakis­tan would have to complete a set of prior actions — mostly through binding parliamentary approvals and legislation — within the next 40 days in order to reach a formal staff level agreement (SLA) with the International Monetary Fund (IMF) for its next bailout programme, as a fortnight-long dialogue winds down.

Informed sources said Pakistani authorities and an IMF staff mission, led by Nathan Porter, had completed their engagements covering almost all critical sectors of economy, including major reforms in the power and gas sectors, state-owned entities, pensions, revenue mobilisation and expansion, and monetary policy horizon in line with inflationary expectations.

The two sides have reached a broad understanding on action points, their timelines and backup plans that the government would comply with through parliamentary sanction of budgetary measures and related legislation in the Finance Bill 2024-25.

“The fund wants a stamp of approval from parliament for the reform and policy actions, given the unpredictable political environment,” said an official, adding that the mission would be flying out on Friday without announcing an SLA.

The two sides already had their customary goodwill receptions.

On implementation of gas and electricity tariff adjustments and beginning of their reform actions besides approval of taxation and trade tariff related policy measures and amendments in tax laws through finance bill 2024-25, the fund mission would review them and on satisfactory compliance, formally announce SLA by end-June or early July 2024.

“Most probably online consultations would be enough for minor clarifications here and there after the budget is approved by the parliament and there would be no need for a follow up mission,” an official said in response to a question.

“Review has been completed, last leg of talks looks good so far, perhaps some performance benchmarks maybe adjusted by the fund, nothing else and that too after budget process is over.”

The federal budget presentation in the parliament is almost final for June 7, as Eidul Azha holidays would leave very tight schedule for parliamentary debate, the official said.

Tax-related measures

Officials said the tax-related measures like a reduction in the number of slabs for salaried persons, treatment of agricultural income as normal income like any other sector, actions and punishments for non-filers and increase in their transaction costs would be given legal coverage in the finance bill through amendments in income and sales tax laws.

Likewise, it has been agreed to remove Rs60 per litre cap on petroleum development levy and keep it open-ended, besides inserting clauses enabling carbon tax would also be part of the finance bill. These two taxes are planned for revenue enhancement and leverage for price adjustments to create buffers, the sources said.

Informed sources said the two sides have agreed over upward revision of natural gas prices for domestic, fertiliser, CNG and cement sectors, no change for special commercials like tandoors and some downward adjustments in gas rate for power sector as part of upcoming gas price review starting with new fiscal year.

The two sides have discussed in detail the reforms for reduction in gas sector circular debt including through progress on weighted average cost of gas (WACOG) – the mix of local gas and imported LNG reform and also contingency steps in case of slippage on WACOG exercise.

Debt repayment

The power division also exchanged at least three different plans with the IMF, at times assisted by the World Bank, on how to address rising capacity payment and its declining horizon of debt repayments of CPEC-related projects. The principle objective of full cost recovery through tariff would be protected by the authorities along with demand triggering measures. All numbers and data not only pertaining to power sector but also other state-owned entities (SOE) have been agreed upon along with their budgetary impact.

“Three-pronged and different sets of back-up plans for recoveries, reforms and tariff rationalisation in both gas and electricity were shared and agreed upon that would remain progressive to the emerging ground realities,” an official said. On average, gas prices would go up by somewhere between 20pc and 30pc with the advent of new fiscal year, to begin with depending on progress on WACOG.

List of 24 SOEs shared

In this respect, a list of 24 SOEs has already been shared with the IMF with their categorisation as strategic, essential and transfer to private sector and Pakistan has conceded to the IMF demand that only those functions and services be kept in the government which could not be performed by the private sector. In this regard, a few fresh SOEs have also come to fore like a few subsidiaries of Pakistan Railways and Science and Technology and the authorities have committed to speed up the process. The two sides, however, did not see much progress in the privatisation programme during the next fiscal year, except a couple of ripe transactions like Pakistan International Airlines.

The two sides would remain engaged on the future of state organs like Pakistan Television and Radio Pakistan and whether these could go to an already saturated private sector. They would, nevertheless, have to comply with corporate rules including transparency in their financials.

Published in Dawn, May 23rd, 2024