Pak needs to pass budget agreed with IMF to get loan assistance: Report

Pakistan will have to take two more "prior actions" to secure economic relief package from International Monetary Fund (IMF) - Passing the federal budget as agreed with the monetary organization, as well as, presenting a memorandum of understanding (MoU) duly signed by the provincial governments.

Pakistan is under a heavy financial crunch and has secured a deal with the International Monetary Fund (IMF) to restore the stalled USD 6 billion package, however, the road ahead is not easy to get two combined tranches of about USD 1.85 billion from the IMF by the end of July or early August.

Finance Minister Miftah Ismail announced on Tuesday that Pakistan had received the Memorandum of Economic and Fiscal Policies (MEFP) from the IMF for the combined seventh and eighth reviews, reported Dawn.

 

Under the MEFP, prior actions include the passage of the federal budget as agreed to with the IMF and presented in the National Assembly on June 24 and present a memorandum of understanding (MoU) duly signed by the provincial governments to jointly provide about Rs 750 billion cash surplus to the Centre.

Top government sources said these prior actions -- which will be in addition to a series of structural benchmarks for the performance review -- would be necessary for the Fund's executive board to approve the merger of the seventh and eighth quarterly reviews of the 39-month, USD 6 billion loan programme that originally began in July 2019, reported Dawn.

The MEFP is based on budgetary measures announced by Ismail in his winding-up speech on the revised budget in the National Assembly last week, envisaging over Rs 1.716 trillion (2.2 pc of GDP) of fiscal adjustment, mostly through taxation, including 10 pc super tax on 13 industries and personal income tax covering monthly incomes above Rs 50,000 per month.

This is on top of a fixed tax regime for sectors like retailers, traders, jewellers, builders, restaurants, automobile and property dealers and so on, reported Dawn.

The federal government is now required to share with IMF an MoU with provinces along with the finance bill passed by parliament as prior actions to ensure that budget numbers presented in the fiscal framework would be adhered to.

The two sides would then jointly go through the MEFP over the next couple of days before formal signing by the finance minister and the State Bank governor to enable the fund staff to circulate Pakistan's case among the executive board members for approval, reported Dawn.

Earlier, the Shehbaz Sharif government increased the tax rates for the salaried class to fulfil the demand of the IMF. It had withdrawn the tax relief to the salaried class announced on June 10 and the Federal Board of Revenue (FBR's) collection target was increased to Rs 7,470 billion, reported Geo News.

On Personal Income Tax (PIT), the government raised a tax amount of Rs 80 billion as first, the government abolished tax relief of Rs 47 billion and then raised a tax amount of Rs 35 billion, so the FBR was going to collect Rs 235 billion from salaried class in the next budget against a collection of Rs 200 billion in the outgoing fiscal year.

Moreover, under the structural benchmarks, the government will start imposing the petroleum development levy (PDL) from July 1 at the rate of Rs 10 per litre on all products, except Rs 5 per litre on high-speed diesel (HSD). The levy would then keep going up at the rate of Rs5 per month to a maximum of Rs 50.

Also, the electricity rates would be notified to go up by Rs 3.50 per unit in July and August each and about Re 1 per unit in the September-October billing cycle.

Under the MEFP shared with the government, the 39-month EFF will be extended by one year to September 2023.

However, the IMF has not yet committed to the MEFP if it would also increase the size of the programme by USD 2 billion to a total of USD 8 billion, as verbally given an understanding during Miftah's visit to Washington in the last week of April.