ISLAMABAD: Pakistan Muslim League-Nawaz (PLMN) led coalition government is set to increase gas price by 53 percent, impose general sales tax (GST) on petroleum products and withdraw subsidies under the commitment given to the International Monetary Fund (IMF), while IMF has set new structural benchmarks including an anti-corruption framework to scrutinize the assets of wealth of public office.
The PDM government has agreed to implement all IMF policies, saying it is necessary for sustained implementation of this budget while avoiding further policy slippages is crucial to address imbalances, reduce elevated vulnerabilities and build confidence.
On Friday, the IMF released a detailed report on the completion of the seventh and eighth reviews of the extended fund facility (EFF), under which Pakistan has also committed to ensure electronically filed tax and asset details of grade 17 to 22 officers and members of the cabinet and the parliament and make them available to “authorized entities”, not to the public, besides globally acceptable comprehensive review of the anti-corruption institutional framework, particularly the National Accountability Bureau (NAB).
The government has given assurances to the IMF to recover about Rs786 billion from gas consumers during the current year, which is 45 percent higher than the proposed increase by OGRA.
As a result, the gas tariff would be higher by 53 percent to scale down the gas sector circular debt that the government put at Rs1.230 trillion as end-March.
Moreover, the government has committed to immediately increasing GST on fuel, reaching the 17 percent rate.
In addition, the government would stagger capacity payments to power producers, either through revised power-purchase agreements or a lengthened debt repayment period, in order to contain rising circular debt, which, even after budgetary payments of Rs564 billion, stood at Rs2.253 trillion by the end of June.
Given the political climate, particularly as we approach an election year, the IMF identified the provincial cash surplus commitments of Rs750 billion and the petroleum development levy (PDL) target of Rs855 billion as potential risks and obtained a contingency plan from the government to make up for slippages.
A bank, a development finance institution, and two LNG-based power plants are among the four state-owned enterprises (SOEs) that the government has pledged to privatize this year. Additionally, the government has already established a central monitoring unit in the finance ministry to oversee the financial management of other SOEs and boost their performance.
The government has also pledged that now that the tariff backlog has been cleared, it won’t interfere with the decisions made by the power regulator Nepra regarding power tariffs and will timely permit uninterrupted implementation of all revisions to the annual base tariff, quarterly adjustments, and fuel price adjustments.
The provincial commitment to deliver the historically high surpluses agreed to, the significant containment of current spending relative to GDP in a pre-election year, and the government’s ability to raise the projected revenue from a number of novel taxes and staggered PDL implementation (with 90% of the revenue generated in the last three quarters) are just a few of the fiscal risks to the program.
