Pakistan, IMF at stalemate over Rs 900 billion fiscal gap, says report

Islamabad: The International Monetary Fund (IMF) and the Government of Pakistan are at a stalemate over 900 billion rupees fiscal gap, a major stumbling block in striking a staff-level agreement, reported Geo News.

IMF has worked out a larger gap of approximately 900 billion rupees, equivalent to 1 per cent of the gross domestic product (GDP).

IMF is asking to jack up the GST rate by 1 per cent from 17 to 18 percent or impose 17 percent GST on Petroleum, Oil, and Lubricants (POL) products, reported Geo News.

Meanwhile, Pakistan is contesting the fiscal gap in achieving the primary deficit. Pakistani authorities have asked the IMF for incorporating a flow of reduction under the revised Circular Debt Management Plan (CDMP) and reduced the amount of required additional subsidy of 605 billion rupees against the earlier target of 687 billion rupees.

Therefore, the fiscal gap stood in the range of 400 billion to 450 billion rupees.

Moreover, top officials have completely ruled out any possibility of IMF condition about the signing of Pakistan Tehreek-e-Insaf (PTI) Chairman Imran Khan for reviving the Fund program and said that no such discussions took place with the IMF review mission, reported Geo News.

“Differences still persist over ascertaining the exact fiscal gap between Pakistan and the visiting IMF review mission during the technical levels talks. Once it’s finalized with the IMF, then the additional taxation measures will be firmed up, which will be unveiled through the upcoming mini-budget. In view of a lack of reconciliation over the figure of fiscal gap, the technical level talks will continue on Monday and then policy level talks are expected to commence from Tuesday,” sources confirmed while talking to a select group of reporters in the background discussions on Saturday.

They said the government agreed in principle with the IMF to abolish electricity and gas tariff subsidies for the export-oriented sector because such kind of dole out was completely unacceptable to the lender.

The exporters’ scheme will be revised by bringing major changes to it, said the official, reported Geo News.

The Pakistan authorities conceded that the power sector had so far proved to be a major stumbling block on the way to achieving smooth sailing.

However, the circular debt for the gas sector also remained a problematic area, reported Geo News.

The expenditures overrun will breach the overall budget deficit target of 4.9 per cent of GDP, which is likely to touch 6.5 to 7 per cent for the current fiscal year.

Meanwhile, the government is ready to slap the flood levy on affluent segments as well as on imports, impose a levy at the rate of 41 per cent on windfall profits earned by the banking sector, enhance Federal Excise Duty (FED) rate on cigarettes, sugary drinks from 13 to 17 per cent, enhance withholding tax rates on a property transaction, air travel abroad and others.

The IMF assessed that the FBR would face a shortfall of 130 billion rupees in achieving the target of 7,470 billion rupees, reported Geo News.

It is expected that both sides would strike a staff-level agreement by the conclusion of the talks on February 9. Then the IMF’s Executive Board will consider approval of the next tranche probably in March 2023.

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