Pakistan hopes to get a positive response from the International Monetary Fund (IMF) on the seventh review, after addressing the Fund's concerns regarding the prime minister's relief package in detail, citing Finance Minister Shaukat Tarin.
"We thoroughly briefed the IMF mission over their concerns regarding PM's Relief Package on petrol, diesel and electricity prices and tax amnesty for industrial sector," Tarin said while speaking about the government's meeting with the IMF.
He said that the IMF team will return with its final assessment tomorrow (Friday) to hold virtual talks.
The minister claimed that there was no difference of opinion between the two sides on macroeconomic figures till December 2021 and the pending seventh review was "almost done".
When asked about the IMF's demand to remove exemptions and raise the rate under the Personal Income Tax (PIT), Tarin said nothing regarding PIT came under discussion as it would be a part of the next review’s agenda under the IMF programme because taxation measures would be taken for the next budget 2022-23.
Reacting to Tarin’s claims, officials said it would be quite difficult to strike a staff-level agreement with the IMF at a time when the political dust is yet to settle.
They said a political crisis in the country is looming over the ongoing staff-level review talks and a decision on the next loan tranche is likely after an outcome on the no-confidence move due later this month.
Pakistani authorities have so far explained to the IMF that the amnesty is more of an industrial package, which entails five-year tax holidays on projects with investment by Pakistani expatriates in Pakistan.
Pakistan will have to convince the IMF for breaching the commitment of raising the petroleum levy by Rs4/month until it reaches Rs30/litre.
This has become impossible due to the unprecedented rise in world oil prices and it is hoped the IMF will view it with leniency.
The ongoing discussions will focus on energy price reform, which seeks to bring electricity and gas prices in line with cost recovery along with the formulas placed in the amended NEPRA and OGRA Acts.
This would require raising the base electricity tariff and taking major steps to eliminate growth in circular debt in the power sector.
Pakistan and IMF will have to evolve consensus on a revised macroeconomic and fiscal framework for estimating budget deficit and current account deficit.
The government had envisaged the budget deficit at 6.3% of the GDP, which was likely to touch the mark of 7% of GDP for the outgoing fiscal year. Although the size of the country’s economy increased manifold in the aftermath of rebasing of national accounts from 2005-6 to 2015-16 so it escalated to Rs55.5 trillion from earlier estimates of Rs48 trillion.
The size of GDP is estimated to go up to Rs63.8 trillion for the current fiscal year 2021-22; however, the budget deficit is all set to escalate further and likely to touch Rs4.4 trillion highest ever in an absolute figure in the country’s history during any fiscal year.
IMF assessed the current account deficit at $12.9 billion on eve of the last 6th review of the Fund as it had already touched $11.6 billion in the first seven months of the current fiscal year. Now the IMF will have to revise its current account deficit projection upward in the range of $18 to $20 billion. Thus arrangements of $5 to $7 billion additional financing will have to be bridged to avoid depletion of foreign currency reserves.