ISLAMABAD: Additional measures will be needed to bring Pakistan’s budget for the year 2022-23 in line with the key objectives of its International Monetary Fund programme, the lender’s resident representative in Islamabad said.
“Our preliminary estimate is that additional measures will be needed to strengthen the budget and bring it in line with key programme objectives,” Esther Perez Ruiz told Reuters.
Pakistan unveiled a 9.5 trillion budget for the next fiscal on Friday aimed at tight fiscal consolidation in a bid to convince the IMF to restart much-needed bailout payments.
Miftah Ismail:
Finance Minister Miftah Ismail Monday claimed that Pakistan would default if the government did not abolish subsidies on petroleum products. Perhaps, Miftah Ismail is the first-ever sitting finance minister to say that the country would default.
Speaking at a post-budget conference here, the finance minister said if the price of petrol and electricity is not increased, then the country will default.
He said the International Monetary Fund (IMF) has insisted on abolishing the subsidies on petroleum products, adding that the government is still subsidizing Rs 53 per litre on high-speed diesel, Rs 19 on petrol, Rs 24 on kerosene and Rs 23 per litre on light diesel.
He said Sri Lanka also gave subsidies to its public and it, eventually, defaulted.
“Today, Sri Lanka is purchasing expensive oil and they do not have funds to buy medicines for their people,” the finance minister said as he warned of a similar situation in Pakistan.
The finance minister also said that Pakistan will have to further rise in prices of petroleum products and a difficult situation could arise in mid-July.
In a bid to bring economic stability and revive the stalled multi-billion-dollar IMF programme, the government had increased the price of petrol by a whopping Rs60 per litre last month.
It was also expected that after the budget, some hurdles would be removed in the IMF programme’s revival. But the finance minister last week said the IMF “was still unhappy with the government over the budget” mainly because it did not implement the Personal Income Tax (PIT) measures suggested by it.
Miftah had also said last week that there was no financial emergency in Pakistan after the government took steps to rectify the ongoing economic turmoil and increased the price of petrol.
But in today’s TV interview, the finance minister said if the government does not increase the prices, the IMF will not strike a deal with Pakistan, and if this happens, then the country will be pushed toward “destruction.”
“I have told the prime minister that we have to take tough decisions. The prime minister is unhappy with increasing the prices of petroleum products. Whenever I send a summary in this regard, the ministers curse me,” Miftah lamented.
Miftah added that the PTI government did not make the decisions it agreed upon with the IMF. “We are in talks with the IMF; the PTI did not strike a good deal with it.”
He also said that Pakistan needs $42 billion in the next fiscal year and we have to pay $21 billion in debt adding that he said that if we do not settle our matters with IMF, the World Bank will hold $9.5 billion and the ADB $8 8 billion in financing.
He said that once the agreement with the IMF is reached and Chinese banks extend their loan facility to Pakistan, the market will regain confidence.
He also said that government would also include 6 million people in the Benazir income support program. we have received 4 million texts in 10 days as the government announced to give Rs2000 for petrol subsidy.
He said that the government has announced incentives for agricultural development in the budget and would also announce the export policy in a few days.
Replying to queries regarding the increase in electricity tariff, he said that Economic Coordination Committee has approved jacking up the electricity prices by Rs7.91 per unit.
The matter would be presented in cabinet meeting then we will gradually increase the prices of electricity.
Replying to media queries on the ongoing discussion on Twitter about his company, the finance minister said that there is no tax discount for his company.
He said the Lay’s manufacturing company will get benefit as it wanted to export its product. “My company uses the candy colour but there is no reduction in the duty of candy colour”, he added. He also said that Pakistan will be out of FATF’s grey list soon.
Govt to review salary tax relaxation after IMF objection
As the International Monetary Fund (IMF) completely rejected the proposed tax relief in the Personal Income Tax (PIT) to the tune of Rs47 billion, the government is left with no option but to consider making changes to the proposal, sources reported.
While the Federal Board of Revenue (FBR) has given the relief to the salaried class earning up to 1.2 million rupees per annum, top official sources said that the IMF conveyed its clear reservations regarding the proposed rate for the PIT.
To provide relief to the urban middle class, the Fund wants that the relief is restricted only to people with up to Rs0.2 million earning per month and that tax rates should be jacked up later in other slabs.
Contrary to this broader agreement with the IMF during the sixth review under the PTI-led government which was placed as a structural benchmark under the Fund agreement, the FBR proposed relief to those who are earning up to one million rupees per month in salary in the budget for 2022-23 through Finance Bill 2022 in Parliament. These proposed PIT rates, if not changed, could turn into a major blockade to strike a staff-level agreement with the IMF.
The IMF wanted increased revenue collection up to Rs125 billion by placing PIT in a progressive format but the government took steps another way round and made it impossible for both sides to strike a staff-level agreement under the $6 billion Extended Fund Facility with the existing proposal of PIT.