The International Monetary Fund (IMF) loan programme’s revival is dependent upon the conditions of introducing the Finance Bill in the National Assembly aiming to increase taxes and the approval of the State Bank of Pakistan (SBP) Amendment Bill.
Finance Adviser Shaukat Tarin shared on Tuesday that Pakistan is also obliged to show a balanced budget, exclusive of the payment of interest on public debt.
Tarin said that the IMF board would pass the $1 billion loan tranche after all the prior actions were taken but he did not disclose any new deadline in place to meet these conditions.
The finance adviser addressed the press following the distribution of corporate awards by the Pakistan Centre for Philanthropy.
This is the first time that the advisor has provided clarity on prior actions that the government was required to take for the stabilization of relations with the IMF, as the loan programme had derailed since June this year.
Tarin said that the IMF has asked for three prior actions on the fiscal side and “we have already met one by increasing electricity prices last month”.
He disclosed that no further increase in power prices was required during the current calendar year.
Answering a question pertaining to whether the government would introduce a presidential ordinance to levy new taxes, Tarin remarked that the IMF did not recognize the ordinance as a source of legislation.
Tarin added that in comparison to April 2021, he had regained substantial ground by convincing the IMF to soften its conditions. He noted that IMF talks were at a delicate stage, and required cooperation from all parties.
According to reports, roughly Rs400 billion worth of new tax measures would be taken, mainly by withdrawing sales tax exemptions on a yearly basis. However, its effect on the remaining period of the current fiscal year would be lesser.
He added that the timing for the introduction of the Finance Bill in the National Assembly is dependent on the understanding that will be reached between the IMF and the Ministry of Finance. Both the Federal Board of Revenue (FBR) and the IMF have agreed on the set of tax measures.
The completion of the review will make way for the issuance of the next loan tranche of $1 billion in addition to the $1.6 billion injections by the World Bank and the Asian Development Bank.
Answering a query about the primary deficit target, Tarin said that there would be zero primary deficit in the current fiscal year. Primary balance is calculated by excluding the cost of debt servicing.
Responding to another question pertaining to whether the government could achieve primary balance during the current fiscal year, the adviser expressed hope that the government will be able to achieve it due to exceptionally good tax collection by the FBR.
Tarin noted that there would also be a reduction in the Public Sector Development Programme (PSDP) but hoped that in the case of better fiscal performance, the development spending could be increased towards the end of the current fiscal year.
He said that the government has also made adjustments to the Circular Debt Management Plan, which would help lower the circular debt by Rs400 billion within the current fiscal year.
Tarin said that he had instructed public sector companies to pay dividends and the government’s dividend share should be adjusted against the circular debt payment.
He also shared that the creation of the Treasury Single Account was also a condition of the IMF programme but it was not a prior action.
Under phase-II of the Treasury Single Account, the government is required to close all commercial bank accounts maintained by public sector enterprises and the armed forces.
Answering a question about whether the surge in interest rate was also a condition of the IMF, the finance adviser said that the issues of exchange rate and monetary policy were dealt with by the central bank and he would not comment on it.
