Thursday, January 19, 2023

PM Shehbaz Sharif ready for ‘tough decisions’ to revive stalled IMF programme

Gas, electricity tariff hikes, 1-3% flood levy, and increase in FED are among the major decisions

Prime Minister Shehbaz Sharif talking to media. — AFP/file
Prime Minister Shehbaz Sharif talking to media. — AFP/file
  • Sources say gas prices to be hiked by Rs650/MMBTU.
  • Electricity prices to be increased by Rs7.50/unit.
  • 1-3% flood levy to be slapped on imports to fetch Rs100 billion.

ISLAMABAD: Prime Minister Shehbaz Sharif on Wednesday reportedly agreed to enforce hard decisions to break the stalemate with the International Monetary Fund (IMF), The News reported.

The tough decisions include hiking the gas and electricity tariffs and unveiling a mini-budget for imposing more taxation measures to fetch Rs150-200 billion.

Official sources told The News, “The premier chaired an online meeting Wednesday evening for around three hours and thirty minutes in which important decisions were taken. However, this meeting is expected to be reconvened on Thursday (today) for taking more crucial decisions.”

When asked about the possible hike in electricity and gas prices, the State Minister for Petroleum Musadik Malik did not reply.

However, sources, privy to the development, said the gas tariff is expected to increase from Rs650 per MMBTU to Rs1,100 per MMBTU on average.

SNGPL and SSGCL have a monstrous circular debt of Rs1,640 billion, the government plans to recover Rs800 to Rs850 billion via the new price hike.

Meanwhile, in the power sector, the government is considering raising the electricity tariff from Rs4.50 per unit in the first phase and Rs3 per unit in the second phase within the ongoing fiscal year.

The government's envisaged FBR tax collection target was Rs7,470 billion, however, FBR fell short by Rs225 billion until December. The collection in line with the IMF’s target was missed out by a margin of Rs82 billion for the end of December 2022.

The FBR’s internal assessment shows that the tax collection machinery will be facing a shortfall of Rs170 billion for the ongoing fiscal year, so the tax collection will be standing at Rs7,300 billion against the initially envisaged target of Rs7,470 billion.

To fulfil the shortfall by the FBR, the government will have to take extra measures that could fetch Rs300-400 annually. Imposing additional taxes and rate hikes would be an excruciating process, which the government would undergo through a possible presidential ordinance.

The Pakistan Muslim League Nawaz (PML-N) government plans to slap a 1 to 3% flood levy on imports to fetch Rs100 billion.

Secondly, the government is also considering slapping a 60 to 70% tax on commercial banks' alleged earnings through manipulation of the exchange rate. The banks estimated earned around Rs100 billion in extraordinary profits in the first nine months of the calendar year 2022.

An increase in the Federal Excise Duty (FED) on sugary beverages, and cigarettes and slapping GST on POL products is also on cards. However, in the recent past, Finance Minister Ishaq Dar sternly opposed slapping 17% GST on POL products, arguing that it would be highly inflationary.

It is yet to be seen how the government will respond to the IMF's demand to allow the depreciation of the rupee against the US dollar. Finance Minister Ishaq Dar will never let the depreciation of the exchange rate free fall but he will have to generate dollar inflows to improve the dollar liquidity crunch in weeks and months ahead.