ISLAMABAD: Though, Pakistan has announced that it in a breakthrough, Pakistan and the International Monetary Fund (IMF) on Tuesday night reached an understanding on the federal budget for 2022-23, leading to revival of the extended fund facility (EFF) after authorities committed to generate Rs436 billion more taxes and increase petroleum levy gradually up to Rs50 per litre.
The understanding was reached during a meeting, held via video link, between the IMF staff mission and the Pakistani economic team, led by Finance Minister Miftah Ismail.
Acknowledging that important progress has been made over the FY23 budget, IMF Resident Representative in Pakistan, Esther Perez Ruiz told Dawn: “Discussions between the IMF staff and the authorities on policies to strengthen macroeconomic stability in the coming year continue.”
The IMF mission will finalise monetary targets with the State Bank over the next couple of days and, in the meantime, share the draft of a Memorandum of Economic and Financial Policy (MEFP).
The MEFP would also contain certain prior actions that would be necessary for implementation before the IMF board takes up Pakistan’s case for approval and the subsequent disbursement of about $1bn next month.
“We have now locked the budget in consultation with the IMF,” Finance Minister Ismail told journalists, adding that all budget-related issues had been settled with the Fund.
The IMF is also expected to issue a statement confirming substantial progress on the fiscal framework, the two sides agreed. Top government sources said that to win over the IMF mission, the Pakistani side had agreed to start charging on all POL products a petroleum development levy which will be gradually increased by Rs5 per month to reach a maximum of Rs50.
In yet another retreat, the government also agreed to impose 1pc poverty tax on firms earning Rs150 million, 2pc on those earning Rs200m, 3pc on over Rs250m and 4pc on Rs300m above. In the original budget, the government had set a 2pc poverty tax only on those earning Rs300m and above.
The government also agreed to do away with provisions for additional salaries and pensions, for which Rs200bn had been set aside as block allocation. Instead, a separate allocation of contingencies had been made but that would be strictly meant for emergencies likes floods and earthquake so that amount remains unspent.
Pakistan also committed to deliver a Rs152bn primary budget surplus, which means the revenues would finance all expenditures — other than interest payments — and still leave Rs152bn surplus in the national kitty.
IMF deal still weeks away, says Tarin
PTI leader and former finance minister Shaukat Tarin said on Wednesday that a potential deal with the International Monetary Fund (IMF) for the revival of the extended fund facility (EFF) was still weeks away as he lashed out at the current coalition government for its economic policies.
Speaking to the media here, Tarin said: “We pray [an agreement is reached]. Because the country is ours and we are nothing without the country. We pray that they (government) agree on a deal [with the IMF] which does not burden the people.”
However, the former banker maintained that this was currently a work in progress. “Their (IMF’s) statement says that this is a work in progress and there has been some headway […] they are saying they will give the memorandum of economic and financial policy (MEFP) on Friday. When that has not been received, how can it be said that an agreement has been reached?”
Tarin said that the MEFP would be an extensive and detailed document, which would be deliberated upon and discussed “line by line”. Then a technical agreement is signed which goes to the IMF’s board in Washington, he said, predicting that the deal would materialise by July-end.
“But as I stated before, we want an indication that an agreement has been reached on broad matters as financial markets are nervous.” He pointed to how the stock market plunged after initially making gains on Wednesday.
He went on to say that over the span of 10-12 weeks, the government had made several misstatements and changed its narrative which had affected its credibility with the financial market.
Staff-level agreement on Friday
The International Monetary Fund (IMF) will release a handout on Friday, detailing a staff-level agreement reached with Pakistan, following successful talks over budgetary estimates and other financial policies, it was learnt on Wednesday.
The development came in the late-night talks between the IMF and finance ministry officials led by Minister Miftah Ismail.
According to IMF officials, talks are underway between the Fund and the Pakistan government and both sides have so far agreed to budgetary estimates for the next fiscal year.
The total outlay of the budget for FY 2022-23 will now be Rs9900 billion, Rs400 billion more than the one tabled before the National Assembly,” they said.
Sharing further terms agreed with the Fund, they said petroleum levy will be hiked Rs 5 per month in a phase-wise manner until it reaches Rs50 per litre. “The tax collection target for FY2022 now stands at Rs7445 billion,” they said.
The sources said that the income tax collection will be hiked to Rs55 billion in the fiscal year, imposing 2.5 percent of tax on those earning between Rs600,000 and 1,200,000.
“Those having an income of Rs150 million will pay one percent tax while two and three and four percent taxes will be charged on annual incomes of Rs200 million, Rs 250 million and Rs300 million respectively,” they said.
In addition, the revenues from customs and general sales tax have been raised to Rs1005 billion and Rs3300 billion against their previous targets of Rs950 billion and Rs3008 billion respectively.