NewsJune 24 , 2022
‘Broad Agreement’ Reached with IMF to End Uncertainty
Islamabad: Pakistan on Tuesday announced a ‘broad agreement’ with the International Monetary Fund (IMF) on the next year’s budget that has seen its size increased to Rs9.9 trillion, as the government agreed to reintroduce tax on people earning up to Rs100,000 and petroleum levy from July 1.
The two sides have decided to gradually impose Rs50 per liter petroleum levy -- the first tranche of Rs10 per liter from July - and then Rs5 per liter from August onwards until it reaches the maximum threshold of Rs50 per liter by March 2023.
“We have locked the budget for fiscal year 2022-23 in consultation with the IMF and now the Fund will consult with the State Bank of Pakistan on monetary targets,” Finance Minister Miftah Ismail told a group of journalists. The minister spoke after having a final round of talks with the IMF Mission Chief Nathan Porter.
The size of the budget will go up to Rs9.9 trillion - up by around Rs400 billion against the one unveiled on June 10 by the finance minister. Ismail had unveiled Rs9.5 trillion budget, which was hardly 4% higher than the revised budget of this fiscal year.
The overall primary budget surplus target -- revenues excluding interest expenses -- has remained unchanged at Rs152 billion. The overall budget deficit target also remains the same at Rs3.8 trillion or 4.9% of Gross Domestic Product.
The Federal Board of Revenue’s target has been revised to Rs7.440 trillion as against Rs7 trillion proposed in the budget, requiring 24% growth rate that should not be a problem in a high double-digit inflation.
The government also decided to impose 1% Income Support Levy on people and companies earning Rs150 million a year, 2% on those having income of Rs200 million, 3% additional rate has been proposed for the Rs250 million annual income earners, and 4% for Rs300 million annual income.
In the budget, the government had proposed 2% rate for only those earning over Rs300 million a year.
The government had to give in to the IMF’s demand of keeping the annual tax exemption limit unchanged at last year’s level of Rs600,000. In the budget, it had proposed to exempt up to Rs1.2 million annual income from tax.
But Ismail on Tuesday conceded to the IMF demand and agreed to impose 2.5% income tax on those earning from Rs600,000 to Rs1.2 million per annum. It is still half of the rate the people in this income bracket are currently paying.
The tax rates for the upper income slabs will also significantly go up. The IMF will now finalize the net foreign assets, net domestic assets, net international reserves and current account deficit targets with the central bank. The finance ministry hoped to receive the Memorandum for Economic and Financial Policies (MEFP) by Monday.
Although the broad agreement is short of a staff level pact, but it may help soothe markets and end a four-month long period of uncertainty that took a heavy toll on the country’s currency, unleashing a wave of inflation and eroding the confidence of markets and investors.
The delay had also eroded the political capital of two parties – the Pakistan Tehreek Insaf that failed to conclude the deal despite making repeated attempts – and the PML-N led coalition government that took a longer than expected time in reaching the agreement.
A day ago, Finance Minister Miftah Ismail had hoped to seal a deal with the IMF in a day or so, after the government agreed to increase the tax target to Rs7.44 trillion and adjusted some expenses.
The IMF has also conceded some ground and retreated from its earlier demand to impose Rs30 per liter petroleum levy and 10.5% sales tax with effect from July 1st.
It has been agreed between both the sides that the Rs10 per liter petroleum levy will be imposed from July 1st and after that it will be increased by Rs5 per month until it reaches the maximum threshold of Rs50 per liter. The GST will not be imposed immediately on the petroleum products.
The increase in the budget size to Rs9.9 trillion is because of bringing some reality in the budget figures on account of cost of pays and pensions and setting aside nearly Rs200 billion for emergency spending.
The pension budget has been increased to Rs609 billion as opposed to Rs530 billion proposed on June 10th. The cost of running the civilian government has been increased to Rs600 billion -up from Rs550 billion of June 10th.
The IMF has turned down the government’s budget proposal to collect Rs200 billion on account of Gas Infrastructure Development Cess, as the matter is disputed and under litigation.
The seventh review of the program is pending since March this year after the IMF pulled out of the talks due to the previous government’s decision to give fuel subsidies and announce another tax amnesty scheme. Out of $6 billion, the $3 billion still remain undisbursed.
Ismail said that he had requested the IMF to increase program size to $8 billion and tenure to June next year. The electricity tariffs and the gas prices will also go up.
The broad-based agreement and a subsequent staff level agreement will be subject to the IMF board approval. But the government will require to present a revised budget in the Parliament and get it approved, including the Finance Bill 2022. The budget has to be passed before the end of the month to make it operational from July 1 st... – The Express Tribune
Courtesy The Express Tribune
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