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Sunday, June 23, 2024  
16 Dhul-Hijjah 1445  

Pakistan races to meet IMF’s prior actions deadline by June 30 for next bailout

Mission set to fly out on Friday without announcing staff level agreement
A participant stands near a logo of IMF at the International Monetary Fund - World Bank Annual Meeting 2018 in Nusa Dua, Bali, Indonesia, on October 12, 2018. Reuters
A participant stands near a logo of IMF at the International Monetary Fund - World Bank Annual Meeting 2018 in Nusa Dua, Bali, Indonesia, on October 12, 2018. Reuters

In order to secure a formal staff-level agreement with the International Monetary Fund for its next bailout programme, Pakistan has less than 40 days to complete a set of prior actions, mostly through binding parliamentary approvals and legislation.

According to a report published on Dawn, Pakistani authorities and an IMF staff mission, led by Nathan Porter, have concluded their engagements covering critical sectors of the economy, including reforms in the power and gas sectors, state-owned entities, pensions, revenue mobilization, and monetary policy.

Pakistan last month completed a short-term $3 billion programme, which helped stave off sovereign default, but the government of Prime Minister Shehbaz Sharif has stressed the need for a fresh, longer term programme.

Pakistan’s financial year runs from July to June and its budget for fiscal year 2025, the first by Sharif’s new government, has to be presented before June 30.

Talks between the two sides started last week, with the country assuring the Fund of not taking the loan from the central bank and meeting all foreign debt obligations on time.

The two sides have reached a broad understanding on the necessary action points, timelines, and backup plans that the government will have to comply with through parliamentary approval of budgetary measures and related legislation in the Finance Bill 2024-25.

An official told the news outlet that the lender wanted a “stamp of approval” from Parliament for the reform and policy actions because of the unpredictable political environment—a concern which was also mentioned in the staff report.

The IMF mission would be leaving on Friday without announcing an SLA, the official added.

The implementation of gas and electricity tariff adjustments, approval of taxation and trade tariff-related policy measures, and amendments to tax laws through the finance bill would be reviewed by the IMF. Upon satisfactory compliance, the Fund is expected to formally announce the SLA by the end of June or early July 2024.

According to the official, online consultations would be enough for minor clarifications after Parliament approves the budget. He claimed that there would not be a follow-up mission.

The federal budget is scheduled to be presented in the parliament on June 7, with a tight schedule for parliamentary debate due to the Eidul Azha holidays.

Moreover, the government has agreed to introduce several tax-related measures and adjustments to the petroleum development levy in the upcoming Finance Bill 2024-25.

Such measures include a reduction in the number of income tax slabs for salaried individuals, treating agricultural income as normal income like any other sector, actions and punishments for non-filers, and an increase in their transaction costs.

The government has also agreed to remove the existing cap of Rs60 per litre on the petroleum development levy, making it open-ended.

The current price of petrol stands at Rs273.1 per litre after the government slashed its price by Rs15.39. The government has already reached the maximum permissible limit of Rs60 per litre in PDL, as stipulated by the law.

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The two sides have agreed on an upward revision of natural gas prices for the domestic, fertiliser, CNG, and cement sectors, with no changes for special commercial consumers like tandoors. There would be some downward adjustments in the gas rate for the power sector as part of the upcoming gas price review, which will be effective from the new fiscal year.

The authorities have exchanged at least three different plans with the IMF on how to address the rising capacity payments and declining debt repayment horizons of China-Pakistan Economic Corridor-related power projects.

An official said the principal objective of full cost recovery through tariff adjustments would be protected by the authorities, along with demand-triggering measures.

On average, gas prices are expected to go up by somewhere between 20% and 30% with the advent of the new fiscal year.

Moreover, a list of 24 SOEs has already been shared with the IMF, with their categorisation as strategic, essential, or earmarked for privatisation. Pakistan has conceded to the IMF’s demand that only those functions and services be kept in the government which could not be performed by the private sector.

While addressing a pre-budget conference earlier this month, Finance Minister Muhammad Aurangzeb said that there was no such thing as strategic state-owned enterprises (SOEs).

“Dar Sb chaired the Cabinet Committee on Privatisation (CCoP) meeting on Friday. We [I and Dar Sb] are absolutely on the same wavelength that there is no such thing as strategic SOE,” Aurangzeb said and added that the government would accelerate the privatisation agenda.

Two days later, PM Shehbaz instructed the Privatisation Commission to carry out the privatisation of all SOEs, excluding the strategic ones, regardless of their profitability or financial losses.

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