PM Shehbaz Sharif Agrees to ‘Tough Decisions’ for IMF Deal
PM Shehbaz Agreed in Principle to Implement Tough Decisions in Order to Break the Lingering Deadlock With the IMF
ISLAMABAD: Prime Minister Shehbaz Sharif agreed in principle on Wednesday to take harsh decisions in order to overcome the impasse with the International Monetary Fund (IMF).
The difficult considerations include presenting a mini-budget for new revenue measures of Rs150-200 billion and raising gas and electricity rates.
“The premier led an online meeting Wednesday evening for roughly three hours and thirty minutes in which crucial decisions were reached. This conference, however, is scheduled to be reconvened on Thursday (today) for further critical decisions,” top government sources told The News.
When asked about the decision to raise the gas pricing outside the Ministry of Finance on Wednesday night, Petroleum Minister Musadik Malik did not respond.
According to the sources, the government would have to raise gas and electricity rates for the current fiscal year. In the gas industry, the average cost of Rs650 per MMBTU would be hiked to Rs1,100 per MMBTU.
There is now a monster of circular debt of Rs1,640 billion, of which the government expects to collect Rs800 to Rs850 billion through dividends from two large gas companies, SNGPL and SSGCL.
Within the current fiscal year, the government is proposing raising energy tariffs by Rs4.50 per unit in the first phase and Rs3 per unit in the second phase.
According to the sources, the government expected the FBR to collect Rs7,470 billion in taxes, but in December, the FBR fell short by Rs225 billion. The collecting target set by the IMF was missed by Rs82 billion for the end of December 2022.
According to the FBR’s own estimate, the tax collection system would face a shortfall of Rs170 billion for the whole fiscal year, resulting in tax collection of Rs7,300 billion rather than the previously planned objective of Rs7,470 billion.
To net an additional Rs150 to Rs200 billion in the remaining five months of the current fiscal year, the government will have to take additional measures totaling Rs300 to Rs400 billion on a per annum basis, implying that the government will have to make difficult decisions, possibly through a presidential ordinance.
The government intends to charge the Flood Fee in order to raise Rs100 billion, which will include a levy of 1 to 3 percent on imports.
Second, a fee is being considered to tax banks’ high profits by 60 to 70%, which these institutions allegedly obtained through exchange rate manipulation.
In the first nine months of the calendar year 2022, banks are expected to earn roughly Rs100 billion in unusual profits.
The government is also considering raising the Federal Excise Duty (FED) on sugary drinks and cigarettes, as well as imposing GST on POL items. In the past, Finance Minister Ishaq Dar vehemently resisted any proposal to impose a 17 percent GST on POL items, stating that it would be very inflationary.
It remains to be seen how the government would respond to the IMF’s demand that the rupee depreciate against the US dollar. Minister of Finance Ishaq Dar will not allow the exchange rate to fall further, but he will need to produce dollar inflows in the coming weeks and months to alleviate the dollar liquidity shortage.
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