IMF sets tough terms for bailout revival

End to fuel subsidies and tax amnesty scheme, power tariff hike, new taxes on the list


Shahbaz Rana April 21, 2022
To qualify for lending from new RST, countries would need to develop credible policy and reform measures, have sustainable debt and adequate capacity to repay the IMF. PHOTO: REUTERS

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ISLAMABAD:

The International Monetary Fund (IMF) has set out five major conditions for the revival of $6 billion bailout package, including reversal of fuel subsidies and withdrawal of the tax amnesty scheme, the new finance minister, Miftah Ismail, said on Wednesday.

The other conditions are increase in electricity tariffs, imposition of new taxes and ensuring fiscal savings aimed at bringing down the projected primary budget deficit of Rs1.3 trillion to the earlier agreed limit of Rs25 billion surplus, he said while speaking to journalists.

The government has a plan to get financial assistance from China and secure liquefied natural gas (LNG) on deferred payments from Qatar aimed at taking off pressure from the external sector.

The minister had his first formal interaction with the media hours before departure to Washington where he planned to meet with the IMF management for the revival of the stalled programme. But before flying to Washington Ismail had to approach a court to get his name struck off the no-fly list.

Miftah Ismail has requested a face-to-face meeting with IMF Managing Director Christalina Georgieva. He would also meet with the deputy managing director and staff of the IMF to seek maximum possible concessions against the commitments given by the previous Pakistan Tehreek-e-Insaf (PTI) government.

The IMF programme remains stalled due to the previous government’s back-pedalling on implementation of the condition it had agreed with the Fund in addition to fixing the fuel prices at their March 1st level.

“Pakistan is going to the IMF programme and Prime Minister Shehbaz Sharif has instructed me to make sure that there is least burden on the people in return for revival of the programme,” Ismail told the journalists.

“I have interacted with the IMF staff and it [IMF] has put forth five major conditions related to reversal of fuel subsidies, withdrawing tax amnesty scheme, increasing the electricity prices, imposing more taxes and ensuring fiscal savings,” he continued.

However, the finance minister maintained that Pakistan had not yet accepted these conditions and a decision would be made after holding talks with the Fund.

The conditions have been set out for the next loan tranche of around $960 million under the 7th review of the programme. The finance minister clarified that at this stage, he was not interested in the two programme reviews.

Read Miftah eyes revival of IMF programme

At the moment three programme reviews are pending and their completion will pave the way for the release of a total $3 billion remaining three tranches before the programme is completed in September.

“Former prime minister’s irresponsible action to give fuel subsidies without seeking input from the Ministry of Finance has turned things very sensitive,” Ismail said. “The decision to give the fuel subsidies has put Pakistan’s economic future at stake.

The finance minister added that the revised estimates suggested that the country would need to pay Rs192 billion more in fuel subsidies for the May-June period, bringing the total subsidies to Rs293 billion since March 1st.

According to the minister, the IMF wanted that not only the subsidies be withdrawn but the government should also restore petroleum levy and sales tax on the sales of the petroleum products. “An owner of a Land-Cruiser is availing Rs1,680 subsidy on every fuel tank, he added, endorsing the IMF’s view on withdrawing these subsidies.

The minister did not see any problems in withdrawing the tax amnesty scheme that the previous Imran Khan government had announced. He said that the government was ready to reduce the Public Sector Development Programme (PSDP) to Rs600 billion.

Responding to a question, whether the government would impose inheritance tax as an alternative to taxing the salaried individuals, the minister said that it was not necessary that the son of a rich person should also be rich.

Ismail vowed that the government would not endorse those conditions that could disrupt economic activities. He hoped that the IMF would not push hard to immediately increase the electricity prices and an effort would be made to delay this action too.

About seeking financial help from China, the minister said that Chinese leadership had high regards for the Sharif brothers – Prime Minister Shehbaz Sharif and former prime minister Nawaz Sharif. He hoped that the country would get $4.3 billion breathing space from China in the shape of earlier disbursement of $2.3 billion commercial loan and rollover of $2 billion SAFE deposits.

The finance minister said that his immediate challenge was to sustain the foreign exchange reserves at the current levels and also arrange $4 billion more to pay for the current account deficit.

When asked about the downward slide of the rupee value against the dollar that closed at Rs185.92 on Wednesday, Ismail said that the exchange market was very thin and there was a need for remaining vigilant about any attempts to manipulate the rupee value.

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