Islamabad:
Pakistan may have to raise electricity prices further and revise down its primary fiscal surplus of Rs 417 billion for the first quarter after the International Monetary Fund (IMF) did not accept the government’s position on fiscal numbers and circular debt.
The global lender also raised questions about the role, mandate and powers of the Special Investment Facilitation Council (SIFC) during a briefing by Pakistani authorities on Monday.
He raised concerns about SIFC’s expansive role and immunity in its decisions from accountability.
In a related development, the government has proposed a 40% tax on around Rs 110 billion in windfall profits made by banks from foreign exchange transactions in the years 2021 and 2022. The move will generate at least Rs 44 billion for the FBR, but officials they insist that the tax is not being proposed at the request of the IMF.
Sources said there was no convergence between Pakistan and the IMF on the rise in electricity prices, the ceiling on the revolving debt for the first quarter and the fiscal deficit for the quarter. In order to reach a staff-level agreement by Wednesday, Pakistani authorities were willing to take corrective measures to address the IMF’s concerns.
Sources said power tariffs will have to rise further after the IMF declared the previous average increase of Rs 5.75 per unit in July “insufficient” to contain cyclical debt at agreed levels. Pakistan had pledged to increase prices by Rs 8 per unit, but the actual increase remained below this level.
The matter will now be referred to the IMF’s executive board with a resignation request.
The IMF did not accept the change in the cyclical debt target from the agreed ceiling of 155 billion rupees to 292 billion rupees in the revised cyclical debt management plan.
Pakistan had pledged to limit the flow to Rs 155 billion in the July-September quarter, but later made changes and relaxed the cap to Rs 292 billion. The actual increase was Rs 227 billion and as a result debt jumped to Rs 2.537 trillion by the end of September.
The IMF has asked Pakistan to add an additional 72 billion rupees, from the agreed level of 155 billion rupees, to the primary budget for the quarter, the sources said. This will lead to a change in budget sizes.
Government sources said the IMF did not accept Pakistan’s claim that it achieved a primary fiscal surplus of Rs417 billion, or 0.4% of gross domestic product (GDP), in the first quarter. It has now been decided to revise the original budget amount.
The IMF will reflect a different amount of the primary budget in the Memorandum on Economic and Monetary Policies (MEFP). The fiscal deficit issue has almost been resolved and “we also have a strategy to deal with it,” said federal finance minister Dr Shamshad Akhtar while talking to The Express Tribune.
She was asked to comment on the gap between the fiscal deficit reported by Pakistan and the one processed by the IMF.
He said the IMF has yet to share its final position on the fiscal numbers. The finance minister added that the FBR’s tax collection target will remain unchanged at Rs 9.415 trillion for the current financial year. But the FBR would have to perform as per the targets agreed with the IMF.
Sources said the IMF has asked the FBR to prepare a back-up plan in case its revenue collection falls short. The FBR will submit data to the IMF every month, including details of exchange rate movements as well as imports.
Tax authorities had pointed out that a stronger rupee and lower imports could reduce the annual target by Rs560 billion. They said the gap would be filled through improving collections at the domestic stage.
Sources said the IMF had called for taxes on agricultural inputs if there was a shortfall in taxes.
Meanwhile, the FBR has conveyed a summary to the cabinet to levy a windfall of 40% tax on profits earned by commercial banks by manipulating foreign exchange rates, the sources said. The central bank’s run showed that banks earned about Rs 110 billion in extra profits.
SIFC on the IMF’s radar
Sources said the IMF was briefed on the mandate, role and powers of the civil-military body.
The Fund’s concerns related to the SIFC’s vast powers to grant tax exemptions, award direct contracts bypassing the Public Procurement Regulatory Authority process and give preferential treatment to investors from certain countries.
The IMF’s main concern was indemnifying SIFC’s decisions from accountability, which the global lender said amounted to compromising transparency in public decision-making, the sources said.
The IMF also raised questions about the long-term role of the SIFC and its need when there were other government departments and agencies working to bring in foreign investment. The Fund was informed that the SIFC was established under exceptional circumstances to bring in foreign investment in times of crisis.
The global lender was assured that SIFC had no ambitions to take over functions of other government agencies.
Published in The Express Tribune, November 14u2023.
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