Pakistan economic crisis: IMF places new bailout conditions

The International Monetary Fund (IMF) has finished its first round of “tough talks” with Pakistan and announced that it will share nine tables with the Pakistani government, including the macroeconomic and fiscal framework, clearing the way for policy-level discussions to take place the following week, according to Geo News. 

Pakistan and the IMF will sign a staff-level agreement if a deal is reached by February 9th.

The authorities have massively revised the macroeconomic framework and shared it with the IMF under which the real GDP growth is projected to slash from 5 per cent to 1.5 to 2 per cent while inflation is going to escalate from 12.5 per cent to 29 per cent on average in the current fiscal year, reported Geo News.

The visiting IMF team has pointed out that the nominal growth (real GDP growth rate plus CPI-based inflation) is projected to cross the 30 per cent mark so the Federal Board of Revenue of Pakistan’s (FBR) tax-to-GDP ratio is bound to decline even if it achieves the envisaged annual tax collection target of Rs 7,470 billion, reported Geo News.

An increase in the FBR’s tax collection target is on the cards but its exact level of additional taxation will be determined after receiving the nine tables worked out by the IMF mission which will be shared with the Pakistani authorities on Monday under the draft of Memorandum of Financial and Economic Policies (MEFP).

“The IMF’s prescription suggests the hardest choices on taxation and non-taxation fronts in order to fill the yawning fiscal gap. Different proposals are under consideration including jacking up petroleum levy by Rs 20-30 per litre by maximising the limit from the existing level of Rs 50 per litre to Rs 70-80 per litre or slapping 17 per cent GST on POL products or increasing the GST rate by 1 per cent from 17 to 18 per cent through a presidential ordinance,” sources confirmed while talking to The News International.

On other hand, the IMF has asked for slapping additional taxes on a qualitative, substantial and sustainable basis that should be done in an irreversible way.

The FBR has prepared proposals to jack up the Federal Excise Duty (FED) on cigarettes from Rs 6,500 per 1,000 cigarettes. It indicates that the government will increase the FED rate to Rs 0.50 per stick so the packet rate will go up by R s10, reported Geo News.

There is another proposal of raising the FED rate on sugary beverages up to 17 per cent from the existing rate of 13 per cent through the mini-budget.

However, the FBR has been facing immense pressure from the diplomatic corps in this regard. Another aspect is that sugar is being used in these beverages so the sweetener owners who enjoy political connections irrespective of the political divide will also make last-ditch efforts to block this proposal at any stage, reported Geo News.

Measures like the flood levy of 1 per cent to 3 per cent, bringing lofty profits earned by banks through the levy and raising rates of withholding rates are also are on cards.

Meanwhile, the FBR has notified Sharing of Declaration of Assets of Civil Servants Rules, 2023 under which information about the assets of civil servants from grades BS-17 to BS-22 would be shared between the FBR and the banks, reported Geo News.

According to Statutory Regulatory Order (SRO) 80(I)/2023 issued by the FBR, the board shall share a condensed or abbreviated version of the declaration made by a civil servant in his electronic declaration submitted to the FBR, based on the fields agreed upon with the State Bank of Pakistan, according to local media. 

Prime Minister Shehbaz Sharif described the continuing negotiations, which began on January 31, as “tough.” 

Shehbaz hinted at harsh measures to be taken to restart the delayed loan programme when he indicated that the IMF is giving Finance Minister Ishaq Dar and his staff “a tough time” during a meeting on Friday in Peshawar.

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