Petroleum levy set to rise on IMF demand

Finance Minister Miftah sticks to commitments given to global lender


Shahbaz Rana July 28, 2022
A worker holds a nozzle to pump petrol into a vehicle at a fuel station. PHOTO: REUTERS

ISLAMABAD:

Pakistan was ready to meet the remaining one prior condition of a further increase in the levy on all petroleum products that the International Monetary Fund (IMF) had set for calling the board meeting to revive the programme, said Finance Minister Miftah Ismail on Wednesday.

The minister’s statement should quell speculations that the government might not increase the taxes from August due to the ongoing political crisis. “There is a schedule to gradually increase petroleum levy rates according to which the levy will increase further in the future,” said the finance minister while sticking to the commitments given to the IMF.

The finance minister spoke at a seminar that had been organised under a condition of the foreign lender to qualify for the loan to reform the state-owned enterprises. The seminar was funded through foreign loan proceeds at a time when the country is at the verge of default.

Ismail said that the IMF had set the prior conditions of approval of the new budget, a memorandum of understanding with the provinces to create cash surpluses, raising petroleum levy rates, increasing electricity prices in July, August and October and increasing interest rates. He said that these conditions have been met.

Under the deal with the IMF, the government had imposed Rs10 per litre levy on petrol from July, which will have to be further increased by another Rs10 on August 1 until it gradually reaches to Rs50 per litre.

The petroleum products prices may significantly go up from August due to massive currency devaluation during the past 10 days, which could stoke hyperinflation in the country. The rupee closed at Rs236, having depreciated 1.31%, according to the State Bank of Pakistan (SBP).

The finance minister said that the IMF board meeting would take place later in August, although he wanted the meeting to be held in early August. The IMF board is expected to meet on August 25th.

The finance minister also said that there was a structural benchmark to form a team of experts for the diagnosis of effectiveness of anti-corruption laws. “I have added strings to it that the team will also be determined whether these laws have been used in the past against political opponents and what is the trade-off between efficiency and the anti-corruption laws.”

The previous Pakistan Tehreek-e-Insaf (PTI) government delayed the signing of the cheapest LNG deals in fear of being chased by the NAB, said the finance minister. “In consultations with the IMF, we will appoint a team of world and Pakistani experts to review these laws,” he added.

“Even though we have NAB and PPRA rules for the last 20 years, the corruption in Pakistan has not reduced and the successive governments have not bought cheaper goods,” he said. He again made the case for government-to-government sale deals with the foreign countries by bypassing the existing laws.

Read Pakistan 'will not default', assures Miftah

“It is not only a matter of good boards and management but it is the matter of better laws, as the existing law does not facilitate the privatisation process,” Ismail said. He added that the privatisation law was not the right law, as it did not allow the privatisation. “If we want privatisation, we need to come up with better laws,” the minister emphasised.

Pakistan’s privatisation policy has not succeeded over the years. The SME bank that has been making losses since 2007 and is on the privatisation list since 2008 could not be privatised till today, he added. “The Roosevelt Hotel may not be privatised right now but it is on the privatisation agenda for 36 years.”

The federal cabinet on Wednesday allowed the president to present the Inter-government Transactions Bill 2022 in parliament by changing its earlier plan to implement the new law through a presidential ordinance.

The Express Tribune reported last week that in a desperate attempt to save the country from default through emergency sale of state’s assets to foreign countries, the federal cabinet had approved an ordinance to bypass all the procedures for the process and also abolished regulatory checks, including the applicability of six relevant laws.

Through the Inter-Governmental Commercial Transactions bill, the Centre wants to empower itself to issue binding instructions to the provincial governments for land acquisition, according to a copy of the proposed law.

The government has also barred the courts from entertaining any petition against the sale of assets and shares of the government companies to foreign countries, as per the ordinance.

The finance minister said that Pakistan was in talks with a friendly country for the purchase of shares of Pakistani companies that were listed on the stock market. However, he said: “We have not yet begun the negotiations,” adding that the government wanted to sell minority stakes with the buy-back option; therefore today’s prices were not relevant.

The deal’s size is estimated at around $2-2.5 billion, depending on the number of shares being offered to the UAE and the price of the two-LNG power plants, according to people privy to these discussions.

The finance minister said that the government might lift the ban on the import of luxury items in the next couple of weeks, including pet food. He said that the condition about vetting letters of credits for imports had helped reduce the import bill this month, which so far stood at only $3.7 billion. The imports may remain only at $4.4 billion, which would take the pressure off from rupee from next month, he added.

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