$1b climate funding talks with IMF next week

ISLAMABAD:

Pakistan had been engaged with the International Monetary Fund (IMF) for acquiring the climate fund and expected $1-1.5 billion support from the global lender, Federal Finance Minister Muhammad Aurangzeb told the media persons on Thursday.

Talking informally to reporters after a ceremony in Islamabad, the minister revealed that an IMF mission would visit Pakistan on February 24 for discussions on the Climate Fund, while another mission was expected next month for the half-yearly review of the ongoing Extended Fund Facility.

"Discussions will be held with the IMF on the climate fund. The IMF mission is expected to provide $1-1.5 billion in the form of the climate funding," the minister said. "A second IMF mission will come to Pakistan in March for a six-month review," he added.

IMF's climate funding takes place from its Resilience and Sustainability Trust, which was created in 2022 to provide long-term concessional cash for climate-related spending, such as adaptation and transitioning to cleaner energy.

Pakistan made a formal request in October last year for around $1 billion in funding from the IMF under the trust, to address the nation's vulnerability to climate change. According to an announcement, the mission would visit from February 24 to 28 for a "review and discussion" of climate resilience funding.

Aurangzeb appeared optimistic about the ongoing IMF programme. "Everything related to the IMF programme is fine," he emphasised. He said that the current account deficit for one month had become negative, but remained positive for seven months period.

"The DNA of the economy will be fixed through structural reforms, without this, there is no hope of improving the economy," he said, warning that the growth rate must be increased carefully so that "the boom and bust cycle does not recur".

Meanwhile, speaking at a conference on 'Retail Reimagined: Innovate, Collaborate and Thrive', organised by The Pakistan Retail Business Council (PRBC), the minister expressed concern over the retail sector's lack of contribution to the national exchequer.

"The retail sector, which contributes a significant 19% to the GDP, is paying a mere 1% in taxes," he said, adding that the government had been engaging with the retail sector, requesting them to formalise their businesses and pay their due share of taxes.

He warned that the disproportionate burden of taxes on the manufacturing, services industry, and salaried class was unsustainable. "We need to bring other segments into the tax net," he added. "For national interest, we cannot afford to have people taking a free ride anymore."

He said that a major overhaul of the taxation system was under way, with the focus on end-to-end digitisation to promote transparency, reduce leakage, and combat corruption. "This streamlined [faceless customs] process has eliminated the money culture, fostering a more efficient tax authority."

He said, there has been Rs9.4 trillion in cash circulation, which needed to be brought into the formal economy. He acknowledged that this could not be done overnight, however, the government was determined to move in the right direction.

In his speech the minister highlighted that the economy had taken a significant turn for the better, with macroeconomic stability firmly in place as currency stabilised, foreign exchange reserves increased and inflation receded and the policy rate decreasing significantly, with Kibor receding from 23% to 11%.

"These positive developments have not gone unnoticed, as foreign investors are once again taking notice of Pakistan's economic potential. Institutional flows are returning to the country, with investments pouring in on both the debt and equity sides," Aurangzeb said.