Cash-strapped Pakistan has secured the much-needed IMF deal for the revival of Extended Fund Facility (EFF) after agreeing to raise petroleum levy by Rs50/litre, 11% sales tax on POL products from next month and revise tax revenue target from Rs7,005 billion to Rs7,450 billion, reported 24NewsHD TV channel on Wednesday.

The government has agreed to put Rs5 per litre levy on petrol every month till it reaches Rs50/L after 10 months. 

The Reuters quoted IMF’s representative in Islamabad Esther Perez Ruiz as saying that important progress had been made in talks between the International Monetary Fund and Pakistan to revive the country’s bailout programne. 

“Discussions between the IMF staff and the authorities on policies to strengthen macroeconomic stability in the coming year continue, and important progress has been made over the FY23 budget,” Ms Ruiz said.

The IMF and Pakistan held talks on Tuesday night over macroeconomic and fiscal targets.

According to sources the talks had gone “well” and Pakistan now expected an initial memorandum on macroeconomic and financial targets and then a staff level agreement in a few days.

Sources further revealed that both sides agreed to increase tax revenue target by Rs45 billion in the next budget. 

The revenue target under the head of GST would be raised from Rs3,008 billion to Rs3,300 billion to generate an extra Rs292 billion. The 11% sales tax on petroleum products would be levied from July 1. 

Finance Minister Miftah Ismail tweeted on Tuesday that the fuel subsidy and the IMF programme could not go together. 

“I have always said that we cannot have the IMF programme and the fuel subsidy at the same time. The POL prices have been hiked due to rise in fuel prices in international market. Imran Khan destroyed our economy in order to save his government. The fuel price cap is an unfunded subsidy.”

https://twitter.com/MiftahIsmail/status/1539297903944298503

After the finalization of the deal, Pakistan would promptly get $1 billion tranche.

The official statement regarding the agreement would be released soon. In two weeks’ time, the IMF team would visit Pakistan. 

The talks between the IMF and Pakistani officials would continue today.

Pakistan entered the 39-month, $6 billion IMF programme in 2019, but only half the funds have been disbursed to date as Islamabad has struggled to keep targets on track.

The last disbursement was in February and the next tranche was to follow a review in March, but the previous government of Imran Khan announced to put a cap on fuel prices thus jeopardizing the IMF deal which wanted government to take back all the subsidies. 

The coalition government has removed the price caps, with fuel prices going up the pump by up to 70 percent in a matter of three weeks.

Earlier, media reports had claimed that Islamabad was "seeking Washington's support" for renewing its EFF with the IMF.

As the largest shareholder, the US has considerable influence over the IMF's decision-making.

On Saturday, Pakistan's Ambassador to the United States Masood Khan met Assistant US Trade Representative (USTR) for South and Central Asia Christopher Wilson to discuss expanding trade relations between the two countries and encouraging US investments in Pakistan, a statement said.

Islamabad direly needs IMF bailout programme to avert the possible default. It not only seeks IMF’s $1 billion tranche but also wants to expand the size and duration of the programme.

Sources said that a top finance ministry official confirmed on Sunday that they had not yet received the first draft of the memorandum of economic and financial policies (MEFP) from the IMF as targeted earlier because certain matters remained unsettled.

"We are working very closely with the IMF and will soon reach some conclusion," the official said.

Pakistan is also seeking help of other countries including China and Saudi Arabia. 

China is expected to provide $2.5 billion rollover while in May, Saudi Arabia agreed to provide Pakistan with a "sizable package" of around $ 8 billion to help the cash-starved country to bolster its depleting forex reserves.

 

Reporter Waqas Azeem