IMF mission says ‘significant progress’ made
ISLAMABAD: The International Monetary Fund (IMF) on Friday said it made “significant progress toward reaching a staff level agreement” with Pakistan on a comprehensive economic policy and reform programme for the next bailout under the Extended Fund Facility (EFF).
In its ‘end-of-mission’ statement, the IMF also made it clear that the two sides “will continue policy discussions virtually over the coming days aiming to finalise discussions, including the financial support needed to underpin the authorities’ reform efforts from the IMF and Pakistan’s bilateral and multilateral partners”.
The statement came following conclusion of 11-day talks — May 13 to 23 — between the two sides over $7-8bn 24th bailout under a 36-39 months EFF.
The mission led by Nathan Porter was in town to discuss Pakistan’s plans for “a home-grown economic programme”, building on the economic stabilisation achieved through the successful completion of 9-month Standby Arrangement (SBA) that provided $3bn to the country along with overall umbrella for other multilaterals and bilateral lenders.
Virtual meetings to continue, fresh bailout may bring $7-8 billion
The fund said the reform programme aimed to move Pakistan from economic stabilisation to strong, inclusive, and resilient growth. To achieve this, the fund spelled out what Pakistan will have to deliver over the coming months and years.
“The authorities plan to continue to strengthen public finances to reduce vulnerabilities by improving domestic revenue mobilisation through fairer taxation while scaling up spending for human capital, social protection, and climate resilience; secure energy sector viability, including reforms to reduce the high cost of energy; continue progress towards low and stable inflation by appropriate monetary and exchange rate policies; improve public service provision through state-owned enterprise (SOE) restructuring and privatisation; and promote private sector development, by securing a level-playing field for investment and stronger governance.”
Gas to fertiliser plants
Before the mission departed, the government decided to end subsidy on gas supply to fertiliser plants. Official record seen by Dawn suggested the federal cabinet has “reached the unanimous conclusion that gas to fertiliser plants should be supplied at full price, rather than subsidised rates”.
At present, gas price for fertiliser stands at Rs1,597 per million British thermal unit (mmBtu) although it was increased substantially in February this year but still contained about Rs217 per mmBtu subsidy. The government has now decided to immediately shift to Rs1,814 per mmBtu.
The cabinet consent came after Ministry of Industries and Production suggested direct provision of subsidies to farmers, claiming that “the benefits of subsidised gas to fertiliser plants had not trickled down to farmers, which was evident from the absence of any corresponding decrease in the price of urea and the distortion in the pricing of gas for fertiliser sector should be removed”.
The Ministry of Finance also did not support the provision of further subsidy on gas to meet the resultant price differential as the Ministry of Petroleum was of the view that in case of provision of gas to fertiliser plants at Ogra-notified price, the price differential would either have to be borne by the domestic consumers or must be subsidised by the Ministry of Finance.
Officials said the government will take a series of actions in the upcoming budget and on the sidelines — in case of utility prices — but not later than June 25 for securing the next bailout programme.
Detailed deliberations have already taken place between the two sides on all critical sectors of economy, including major reforms in the power and gas sectors, state-owned entities, pensions, revenues mobilisation and expansion and monetary policy horizon in line with inflationary expectations.
The two sides have reached broad understanding along with 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.
SLA expected latest by July
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 to tax laws, the IMF mission would review them and on satisfactory compliance, announce the SLA by end of June or early July.
Officials said that tax-related measures like reduction in the number of slabs for salaried persons and equal taxation on all other income groups, 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 cover in the Finance Bill through amendments to 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 so that carbon tax would also be part of the Finance Bill.
The two sides have agreed on upward revision of natural gas prices for domestic, fertiliser, CNG and cement sectors. There will be no change for special commercials like tandoors and some downward adjustments in gas rate for the power sector as part of the upcoming gas price review starting with new fiscal year to reduce circular debt.
Power division
The power division exchanged at least three 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.
Published in Dawn, May 25th, 2024