The International Monetary Fund (IMF) has informed Pakistani authorities that the next bailout package under the Extended Fund Facility (EFF) will be considered only after the upcoming budget aligns with IMF guidelines and gets parliamentary approval, according to a report by The News.
Negotiations and Agreement
This arrangement could initiate formal negotiations and lead to a staff-level agreement for the new bailout package. The package could be augmented with climate finance ranging from $6 to $8 billion. Given the timelines, this seems feasible only by July 2024.
Government’s Budget Responsibilities
“In the budget 2024-25, the government must demonstrate its ability to raise Federal Bureau of Revenue (FBR) revenue, achieve a primary surplus by curtailing expenditures, and undertake structural reforms to restrict State-Owned Enterprises (SOEs) losses,” top official sources confirmed on Wednesday. The government must hike electricity and gas tariffs in July and August 2024 to strike a deal with the IMF.
IMF Team’s Visit and Expectations
The Ministry of Finance hosted a dinner in honor of the visiting IMF team, led by Nathan Porter, on Tuesday night in Islamabad. Ongoing discussions were expected to conclude. The upcoming 2024-25 budget will test the government’s ability to meet the IMF’s stringent conditions. The visiting IMF team has gathered data on all major economic fronts and informed the relevant authorities of their expectations for the 2024-25 budget.
Tax and Revenue Targets
The IMF’s requirements are clear: the government must devise a roadmap to increase the tax-to-GDP ratio, projected to drop to 9% of GDP for the current fiscal year. The FBR has been struggling to collect Rs 9.415 trillion, but independent tax experts predict a shortfall. If the FBR collects Rs 9 trillion in the current fiscal year, the IMF will demand an increase to over Rs 12 trillion in the next budget, requiring an additional Rs 3 trillion amid a nominal growth rate of 16%.
Non-Tax Revenue and Expenditure
Non-tax revenue targets will also rise significantly, with a carbon levy under consideration for the next budget. The government will need to rationalize costs associated with SOEs, pensions, and subsidies to reduce current expenditures. Federally, provincial projects will be abandoned in the next fiscal year.
Power and Gas Tariffs
The IMF has called for raising power tariffs through baseline adjustments, fuel price adjustments, and quarterly tariff reviews. Gas tariffs will also increase. Regarding solar net metering, the government plans to hire a Chinese consultant to study the system independently. This system is causing issues for DISCOs’ grids and the transmission and distribution system, exacerbating the power sector’s fiscal challenges.
Power Sector Concerns
Estimates suggest solar panels might generate 6,000 megawatts of electricity. Consumption drops significantly in winter, raising concerns about the unused power in the next winter season. The power sector is in a severe crisis, limiting policymakers’ ability to navigate the situation effectively.
