Pakistan signed off unrealistically tough agreement with International Monetary Fund (IMF) in come back for a $3.5 billion loan that requires a further increase in electricity and gas prices, mini-budget and cut worth 534 billion rupees on development expenses as part of emergency measures.
IMF on A consolidated report was published on Friday of 7th and 8th reviews of rescue package which includes memorandum for Economic and financial policy is a document that full of obligations made Minister of Finance Miftah Ismail on on behalf of of in government of Pakistan.
The document was needed to revive the program and extend it until June 2023. for pay of a total $3.5 billion IMF loan from August 2022 to June 2023.
unrealism of plan can be judged by fact that Pakistan assured global lender that this will raise gas prices by up up to 235% by the end of August is the deadline he has already missed. In addition, the plan also includes closing ads bank Accounts of public departments towards the end of December and transfer cash to the central bank.
The agreement between Pakistan and the IMF at the staff level is expected to change. in in aftermath of floods, although the IMF is unlikely give relaxation in places where there is no direct impact on in population flood victims.
Pakistan assured the IMF that in case of revenue collection slows down or current Expenses start exceeding targets, government will trigger contingency plan, which includes both the introduction of new taxes and cutting in development federal and provincial government spending, according to the report.
“If monthly income data show signs of ineffective against in first quarter of For fiscal year 23 and beyond, we will take immediate action to generate additional revenue if necessary,” the Finance Department assured. minister. Although the Federal Council of Revenue (FBR) exceeded its first two-month tax target of Rs 22 billion, it should climb steep rock in September.
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Finance minister assured the IMF that if the fee slows downPakistan “immediately set goods and services tax on fuel products to rate sufficient to generate the required income up to standard rate of 17%”. Currently GST on oil products are zero but government there is a charge of Rs 37.50 per liter on petrol.
Pakistan has also assured that in to make up for shortfalls in income or higher expenses, it will subsequently remove the exemption from the tax on goods and services, including on sweet drinks worth 60 billion rupees and other unjustified exemptions such as those that benefit exporters and will also increase the federal excise tax on Tier I and Tier II cigarettes with instant effect raise at least another 120 billion rupees in income. A little of taxes on cigarettes have been increased last month.
” compression of current spending is ambitious. If monthly financial transaction data indicate that spending higher compared to Q1 FY23 and beyond, this trigger immediate remedial action in place measures on windfall income”, assured government.
government It has also assured that it would add another 300,000 people in income tax base use of data on withholding tax of enterprises, as well as to identify and register new faces and also use of third-party data. “If required we will also conduct physical examinations for booking new faces.”
Pakistan has already hit over 1 trillion rupees in taxes, including Rs 608 billion collected through the FBR.
Pakistan has also assured the IMF that he was ready to cut public sector development federal and regional government spending. As part of in strategy, the Ministry of Finance will slow down down releases for ministries do sure that the PSDP is reduced by at least 150 billion rupees to 577 billion rupees.
In addition, he assured the IMF that additional savings of Rs 384 billion would come from lower priority projects. in regional budgets of the PSD.
Read more The government is considering getting another IMF loan for floods
in order to deal with natural disasters, etc. government It was already allocated about 200 billion rubles. in in budget. it also promised to reduce avoidable travel, and reduce consumption of utilities by 10% up to reduce expenses.
Pakistan assured the IMF that in in order to improve fiscal efficiency; it is making efforts to “fully operationalize the Treasury Single Account (TSA-2) by the end of December 2022.” Last year the IMF set a condition on pakistan closes everything bank accounts supported public industry organizations and the Ministry of Defense in commercial banks.
government assured the IMF that of principle; energy subsidies will be limited to 570 billion rupees, of what PRs 225 billion will be for tariff difference subsidy arising from power tariff adjustment path.
The report found that government ended the advantage of the previous plate for consumers of electricity, which significantly increased prices in August for consumers.
After an increase in electricity prices by 7 rubles per unit in July and August, t. government promised the IMF that by the end of the year it would further increase prices by 91 paisa per unit. of September. This further raised the tariff, which follow auto zoom in electricity prices on Account of quarterly tariff adjustments for July-September and monthly fuel price correction for July, to fully make up the shortfall due to implementation delay of in first stage after 1 July.
Tariffs will be raised at a time when the nation hit 47 years of high inflation rate of 27.3%, floods inundated 118 districts. of Pakistan, leaving over 33 million people in despair.
government promised that he would cancel the subsidy for electricity, which is used by wells in agriculture. Subsidy Removal Plan for tubular wells for large agricultural users will be brought into the federal cabinet by November 2022.
Pakistan has assured the IMF that it is “increasing up reform efforts in gas sector. government informed the IMF that, based on on receipt of OGRA’s determination of annual estimated income required (ERR) for 22 fiscal year on June 3, 2022, 17 “we are now in process of implementation more than the prescribed increase in consumer prices for gas at the end of August 2022,” the report says.
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Deadline already was skipped and government official said it wasn’t possible raise prices until January next year. government says that he wants to raise gas prices in order to contain the gas sector circular debt flow, address some of in debt shares and improve liquidity of gas companies, minimizing the impact on smaller consumers.
The IMF has been informed that government was going to raise gas prices more than prescribed by the Oil and Gas Regulatory Authority (Ogra). Gas sector circular debt by March this year had increased to 719 billion rupees. year -up from Rs 620 billion at the end of fiscal year 21.
government said it would first end consumer of gas price adjustment from September 2020.
Footnote of report, government stated that, according to the definition of OGRA, the prescribed average gas for the final consumer price I’ll go up about 45% up to Rs 928 per MMBTU. “It will bring about 666 billion rupees. for gas companies (ie. for OOO Sui Northern Gas Pipelines (SNGPL) and OOO Sui Southern Gas Company (SSGKL)) in fiscal year 2023, which is 120 billion rupees. higher than their ERR for Fiscal year 23,” the report says.
Additional income from the sale of gas – 666 billion rupees. price an increase that government general with the IMF is like one submitted to the Economic Coordinating Committee. Additional revenues of Rs 666 billion will be required up up to 235% increase in gas prices.
In July, the ECC approved an increase in natural gas prices in in range of 43% to 235%, but not yet approved by the federal cabinet decision.
If this increase is implemented, Sui Northern Gas Pipelines Limited (SNGPL) will receive an additional Rs 331 billion from consumers. against Ogre’s recommendation of 261 billion rupees. Sui Southern Gas Company Limited (SSGCL) will receive an additional Rs 335 billion as against Ogre’s recommendation of 285 billion rupees.