The International Monetary Fund (IMF) forecasted a fiscal gap of roughly Rs900 billion, or 1% of the country’s GDP, amid the ongoing fiscal gap.
According to sources, the fiscal gap of Rs900 billion is a significant roadblock in reaching a staff-level agreement.
However, Pakistani authorities have disputed such a large fiscal gap in achieving the primary deficit and asked the IMF to incorporate the reduction flow under the revised Circular Debt Management Plan (CDMP) and reduce the required additional subsidy of Rs605 billion against the earlier target of Rs687 billion.
As a result, the fiscal gap was between Rs 400 to Rs 450 billion.
Officials have categorically ruled out the possibility of an IMF condition being placed on Imran Khan, the Pakistan Tehreek-e-Insaf (PTI) chairman, to sign a document to revive the Fund programme. They also claim that no such discussions occurred with the review mission.
During the technical level discussions, there are still disagreements regarding determining the precise fiscal gap between Pakistan and the visiting IMF review mission. The additional taxation measures will be set once it has been agreed upon with the IMF and will then be made public in the upcoming mini-budget. Because of the failure to reach agreement on the fiscal gap figure, technical level negotiations will continue on Monday, and policy level negotiations are anticipated to start on Tuesday, according to sources who spoke to a small group of reporters in private on Saturday.
They claimed that the government and IMF had reached an in-principle agreement for the government to end electricity and gas tariff subsidies for the export-oriented sector because such a distribution was wholly unacceptable to the lender. According to the official, the exporters’ scheme will be revised by making significant changes to it. The IMF approved the Kissan Package but insisted on a power subsidy, 60,000 tube-well subsidies for Balochistan, and AJK.
The power sector had, up until this point, proven to be a significant roadblock in Pakistan, according to the government there. However, they finally managed to move forward on this issue, although the circular debt for the gas sector continues to be difficult. By exceeding the overall budget deficit goal of 4 percent of GDP, the expenditures will go over budget for the entire fiscal year, which is expected to reach 6 to 7 percent.
The IMF will inquire about additional taxation measures after both parties have determined the fiscal gap. However, the government is fighting tooth and nail against the IMF’s request to raise the GST rate by 1% from 17 to 18 percent or impose a 17 percent GST on POL products.
The government is prepared to increase the Federal Excise Duty (FED) rate on cigarettes and sugary drinks from 13 to 17 percent and increase withholding tax rates on property transactions, international air travel, and other things. It is also prepared to impose a flood tax on affluent segments and imports, levy at a rate of 41 percent on windfall profits earned by the banking industry, and increase the rate of Federal Insurance Contribution (FIC) on insurance premiums. According to the IMF, to reach the target of Rs7,470 billion, the FBR would fall 130 billion rupees short.
The Pakistani government has three proposals ready to pitch to the IMF to get a staff-level agreement. These three options aim to reduce spending and impose additional taxes to reduce inflationary pressures.
The IMF granted Pakistan’s request for a 470 billion rupee waiver on flood-related expenses. The IMF shared its preliminary assessment of the fiscal gap of 1% of GDP, or Rs884 billion in achieving the primary deficit, at a low-key meeting with Pakistani officials on Saturday. It was decided to continue the technical discussions on Monday, so the Federal Board of Revenue of Pakistan (FBR) meeting and the power company will continue exchanging data to reconcile discrepant figures. The IMF is anticipated to present nine tables outlining a macroeconomic and fiscal framework on Monday night or Tuesday. After that, both parties are anticipated to hold policy-level discussions.
By the end of the negotiations on February 9, it is anticipated that both parties will have reached an agreement at the staff level. The following month, most likely in March 2023, the Executive Board of the IMF will consider approving the next tranche.
Through a combination of rationalizing spendings, such as cutting the development budget and taking other strict measures, as well as enacting additional taxation measures, the government appears prepared to close the $400 billion fiscal gap. However, they admitted that compared to the initial target of Rs3.952 trillion for the current fiscal year; debt servicing had increased to Rs5.2 trillion. The Centre has no resources left after taking the NFC portion of the provinces. The provinces’ anticipated revenue surplus was another point of contention for the IMF, but Pakistan’s response reassured it that the federating units would help reduce the overall deficit.
The Pakistani side explained the statement of Prime Minister Shehbaz Sharif to the visiting IMF review mission. It informed it that the premier’s statement was intended to persuade the populace to take tough measures as politicians wanted to preserve their political capital. The PM’s statement was not intended to accuse the lender of imposing strict conditions on Pakistan; the IMF team was also informed.
The news feed is taken from GEO News
