According to The News, a government official said that the government would increase petroleum and electricity prices in a gradual manner consistent with the IMF’s recommendations.
WASHINGTON/ISLAMABAD: Pakistan has agreed with the International Monetary Fund (IMF) to roll back fuel and power subsidies and wind up a business tax amnesty scheme to revive a $6 billion loan program said on Saturday.
According to a senior official, “The government will raise both the electricity and petroleum prices in a gradual manner in accordance with the IMF’s recommendations and it also promised to pursue structural reforms.”
Miftah Ismail, Finance Minister, led a delegation of high-powered people to meet with Antoinette Sayeh (DMD) at the Fund’s annual spring meeting.
The Fund’s program will be revived by a rise of Rs10-20/liter in the prices for petroleum products and an Rs5/unit increase in the electricity tariff. The official stated that the government had also indicated its willingness to implement structural reforms in the short- to medium-term to avoid a crisis in the balance of payments.
The News reached out to Miftah Ismail, Washington’s Finance Minister, and asked about his meeting with IMF. He replied briefly, saying, “Very good,” but declining to give any more details. According to a finance ministry official, meetings are “going well.” “The IMF’s DMD assured that the consultations would be resumed.”
Another senior official confirmed Islamabad had promised the IMF to withdraw fuel subsidy by gradually increasing electricity and petroleum prices. The official stated that the Memorandum of Financial and Economic Policies (MEFP), which the Pakistani side and IMF staff will finalize, would pave the way for the stalled Fund program’s revival.
The IMF stated that it would agree to conditions before forwarding a request for approval to the IMF Executive Board to release the $1 billion tranches and complete the 7th Review. In 2019, the IMF approved a $6 billion loan for Pakistan over three years. However, disbursement was slowed due to concerns about the pace and effectiveness of reforms. The finance minister, who was elected this month following a loss of confidence vote by the previous government, stated that he had “good conversations” with IMF.
“They have discussed the possibility of eliminating fuel subsidies. I agree with them,” Ismail, a former IMF economist, stated at the Atlantic Council. We can’t afford the subsidies we’re giving. He said that we would have to reduce this.
He claimed that Imran Khan, the former prime minister, was trying to avoid being ousted. He set a trap for his successors with heavy subsidies on fuel, electricity, and a tax amnesty program for businesses. These measures impeded a disbursement of an IMF loan.
Ismail said that he granted amnesty for businesses to set up factories so they don’t need to pay taxes. Even if they do evade taxes, it’s okay.” Ismail spoke to reporters at an event organized by the Pakistan Embassy. Ismail said that targeted subsidies should be maintained for Pakistan’s most vulnerable people, despite skyrocketing prices.
Shehbaz Sharif, the country’s new Prime Minister, has pledged to revive a struggling economy. This will be a key issue in next year’s elections. Pakistan has sought out international assistance and is currently suffering from a weak tax base. Ismail stated that Pakistan, the fifth-most populous country in the world, must change its economic model, removing all obstacles and increasing exports.
He said, “We have such a elite benefitting country that almost all subsidy you can talk about actually goes to the wealthiest people.”
Ismail stated that his immediate goals were to rein in inflation of double-digits, which is complicated by removing fuel subsidies and kickstart job creation.
He denied that Pakistan was at risk of defaulting on its loans. Pakistan’s foreign reserves are currently at $10 billion, and a large portion of its bilateral debt is held with countries such as China, Saudi Arabia, or the UAE.
Ismail, however, stated that there is “never a bad time to do the right things.”
If what we say is true and we are more competent, we should be able to make a significant difference in just a few months. He said that we’ll be thrown out of the people if we don’t, which would be fine.”