Electricity prices, tax reforms hurdles to restoration of IMF programme

‘Dealing with aftermath of deadly pandemic remains priority of govt’

Shahbaz Rana July 18, 2020

An immediate revival of the International Monetary Fund (IMF) programme is not in sight due to differences over roadmap for increase in electricity prices and tax and institutional reforms, a senior official of the Ministry of Finance said on Friday.

The top official also ruled out the possibility of reducing the age limit for civil servants to 55 years but noted that the government was working on a proposal to introduce pension reforms aimed at making the pension payments financially sustainable and addressing the issue of ghost pensioners.

“It will take time to satisfy the IMF and conclude discussions on some of the outstanding critical issues,” the senior government functionary said, in a background discussion with journalists of leading newspapers.

The official who spoke on condition of anonymity observed that dealing with the aftermath of the deadly pandemic remained the priority of the government than the restoration of the IMF programme at this stage.

However, he maintained that Pakistan was very much keen to revive the IMF programme but said that “we will also have to consider the difficulties being faced by the people”.

“At a time when the economy is not performing, the government cannot impose additional taxes,” the official said.

“It is not fair criticism that the government is following a contractionary fiscal policy,” he added.

The IMF has not approved the second review of the 39-month Extended Fund Facility worth $6 billion since February this year due to disagreement over additional tax measures and increase in electricity prices.

But the official claimed that both the IMF and Pakistan had “good relations” and there was also “no trust deficit” between the two parties.

The senior official stated that the IMF wanted more clarity on how Pakistan would improve its tax system.

The IMF’s concerns about the viability of Rs4.963 trillion tax collection target for the new fiscal year 2020-21 are in line with the views of independent experts who have also termed the tax collection target unrealistic.

The official said that Pakistan was not seeking an urgent IMF board meeting for the approval of the next loan tranche, maintaining that the government did not want to put all its energies to get the programme restored.

“Another critical issue hampering revival of the IMF programme was the roadmap for increasing the electricity tariffs. Both the IMF and World Bank have divergent views on this issue,” he said.

“For the IMF, electricity tariff increase is a part of the solution,” he added.

To a question, the official said that the Karachi consumers were getting cheaper electricity compared with the rest of the country, which had also affected the K-Electric’s balance sheet.

There was a need to increase the tariffs and the premier had directed on Thursday that the rates may either be increased gradually or deferred for about two months.

The official said that the IMF also wanted amendments in the State Bank of Pakistan Act for autonomy to the central bank and changes in the National Regulation of Generation and Transmission and Distribution of the Electric Power Act.

The government had introduced the Electric Power Act bill in the National Assembly on June 10 but it has not yet been approved.

The amendments would allow the federal government to pass on its cost of inefficiency and theft to the power consumers through imposition of surcharges.

The proposed amendments are also aimed at timely notifying the increase in electricity prices to stop the buildup of the circular debt.

The official maintained that the gas and petroleum products prices determination mechanism were among the outstanding issues.

But he did not share a plan for financing the country’s external needs, in case the programme is not restored in the next few months.

He opined that a situation to secure external finances without the IMF umbrella would not arrive and before that both the parties would sort out the issues.

He remarked that the government was currently in the process of finalising a new mechanism for subsidies aimed at doing away with the current regime of giving electricity subsidies up to 300 units monthly consumption.

“Subsidies should only be given to the intended beneficiaries, and the process should be transparent and well documented,” he said.

“In the name of agriculture tube-well, the whole village is getting subsidised electricity,” he added.

The Express Tribune had reported this month that the government had decided to give subsidies only through Ehsaas programme, while electricity subsidies on agriculture would be given on landholding-basis and to areas like Azad Jammu and Kashmir and the erstwhile Federally Administered Tribal Areas (Fata).

The electricity subsidies allocations in the budget are 60% or Rs221 billion less than what the Power Division had demanded before the budget on the basis of existing concessional regimes of domestic users, agriculture tube-wells and exporters.

In its demand, the Power Division had sought Rs266 billion for inter-disco tariff differential subsidies and another Rs100 billion for agriculture sector, industrial support package and zero-rated sector subsidies.

There are currently 27 million electricity consumers, including 23 million domestic consumers.

The change in subsidies regime and reduced allocations of subsidies would hit about 18 million or 66% of the domestic consumers.

The official observed that the government was also undertaking pension reforms and one of the proposals was to introduce contributory pension scheme for new recruitments.

He said the military pensions would also be digitised to address the issue of ghost pensioners.



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