Govt hints at withdrawing power subsidy for exporters

Pakistan and the International Monetary Fund (IMF) have extended technical talks till Monday after gaps remained in their positions in areas of power, taxation and fiscal deficit but the authorities stood ready to slash all types of expenses and withdraw some unbudgeted subsidies

The Pakistani authorities also had to clarify their position in connection with Prime Minister Shehbaz Sharif’s statement that the IMF team was “tough” on the country

The premier’s statement placed the authorities in an awkward situation, requiring them to give an explanation to IMF's Mission Chief Nathan Porter

Among the measures that the government stands ready to take include withdrawing general electricity subsidies for exporters

The government is also willing to give only targeted subsidies linked to the export proceeds

The Public Sector Development Programme (PSDP) and some security-related expenditures may also be slashed to pass on the minimum increase in power prices and taxes to the common people

On top of that, sources said there would be an increase in taxes and electricity prices to convince the IMF to declare the ongoing talks as “successful”

“The technical talks are planned to end on Friday but discussions will continue on Monday in areas where the IMF needed further clarity on the data,” according to the government sources

However, they clarified that the IMF had not doubted the credibility of the numbers this time

Rather, it is the difference over the interpretation, according to the sources

According to the people privy to these negotiations, the discussions had narrowed down to power sector circular debt and the consequent fiscal gap

They added that differences still remained on the Federal Board of Revenue’s (FBR) ability to achieve the annual target of Rs7

470 trillion

The IMF sees the fiscal gap in the range of nearly 1% of the GDP or about Rs800 billion

However, according to the sources, the government has worked out this figure at around 0

7% of the GDP or Rs620 billion

The sources added that these projections would hopefully be bridged by Monday during the next round of technical discussions

Once the gap is bridged, the IMF could share the first draft of the Memorandum for Economic and Financial Policies (MEFP) on Tuesday, a development that might lead to the start of policy talks

The sources said there was a possibility that the IMF would impose some prior actions that Pakistan would have to take before the board meeting for the approval of the loan request

The officials clarified that so far, the talks were held only for the 9th review for the release of $1

1 billion tranche

Depending on the progress made by both sides, there was a possibility that the IMF might club together the next two reviews -- the 10th and 11th

The Power Division had presented a Rs952 billion circular debt flow plan to the IMF but the global lender did not agree to the assumptions, said the sources

They added that the quantum of the unbudgeted subsidies had now been projected at Rs605 billion as against Rs675 billion presented earlier

The IMF understood that the government was not in a position to withdraw farmers’ electricity subsidy

It also endorsed the government's stance that the Azad Jammu and Kashmir’s (AJK) subsidies could not be withdrawn at this stage

Similarly, the subsidy for tube-wells in Balochistan would continue

However, there are many areas where subsidies will be withdrawn

This includes the IMF’s demand to end the untargeted subsidy for the exporters, said the sources

The IMF also appreciated the government's view that some of the measures related to the power sector’s chronic issues could not be taken in the short-term and might be implemented under the next global lender’s programme, whenever it was signed, the sources added

They added that the petroleum secretary would give another briefing to the IMF on the gas sector’s circular debt

However, it was unlikely that the global lender would seek an increase in gas prices

The sources said there were still some gaps against the revenue projections made by the FBR and the IMF teams against the annual target of Rs7

470 trillion

This gap would be bridged with additional revenue measures, as the IMF did not agree that the FBR could achieve its annual target without taking new steps

The FBR chairman would give another presentation to the IMF on Monday, the sources added

Senior officials confirmed that the IMF demanded increasing the General Sales Tax (GST) to 18%, adding that the government was so far resisting the demand

They said at this stage, the government was also not accepting the demand to restore the GST on petroleum products, but the situation would be clear next week

To a question whether the military expenses could also be slashed to minimise the need for additional taxes, the ministry’s officials said  both the security expenses and PSDP were being considered for rationalisation

In a bid to lower the impact of the increase in electricity prices and taxes, the government is going to enhance the monthly stipend of the Benazir Income Support Programme (BISP) beneficiaries

The officials said that there was no difference of opinion between the two sides over the external financing requirements

Date:06-Feb-2023 Reference:View Original Link