PM greenlights hike in gas and power tariffs, GST to please IMF

Government also okayed additional taxes of Rs180bn increasing FBR's annual tax target to Rs7,650 billion

Mehtab Haider
Prime Minister Shehbaz Sharif while addressing a news conference in Islamabad. — INP/File
Prime Minister Shehbaz Sharif while addressing a news conference in Islamabad. — INP/File
  • PM raises electricity tariff from Rs4 to Rs10.
  • Govt also okays jacking up GST by 1% from 17 to 18%.
  • Govt to explore cutting defence expenditures, PSDP, and subsidies.

ISLAMABAD: In a last-ditch effort to seek a breakthrough in talks with the International Monetary Fund (IMF), Prime Minister Shehbaz Sharif greenlighted an increase in the electricity and gas tariffs, and the general sales tax (GST), The News reported Tuesday. 

The government also okayed additional taxation of Rs180 billion increasing the Federal Board of Revenue of Pakistan's (FBR) annual tax target to Rs7,650 billion. By increasing the GST from 17% to 18%, the FBR will be able to fetch Rs55 billion in the remaining five months.

However, the IMF's visiting mission is still insisting upon higher adjustments in electricity tariff which would hover beyond Rs12.50 to Rs14 per unit. The Fund has also suggested undertaking qualitative additional taxation measures and slashing down the expenditure side to restrict the primary deficit within the envisaged limits.

Now that the government is exploring its options to clock expenditure first, the additional taxation measures will be firmed up. So far, the power sector has proven to be a major stumbling block and headache for Pakistani negotiators because of its monstrous circular debt and yawning subsidy requirements were not acceptable to the IMF at all.

"Although, differences persisted over exact prescriptions for fixing the ailing economy and its yawning fiscal gap in achieving the primary deficit which still hovers around Rs 550 to Rs 600 billion. However, the Pakistani side has made a request to the IMF's mission chief for meeting with Minister for Finance Ishaq Dar to move towards the completion of the 9th review," sources confirmed to The News.

One senior Finance Ministry official hoped that the technical level talks would have ended by Monday night and then the IMF would share nine tables comprising macroeconomic and fiscal framework with Pakistani authorities to kick start policy levels talks.

"It is our hope that the talks would be finalised on February 9, 2023, as scheduled by both sides," the official said.

The external side of the economy, according to the sources, also paint a very bleak situation as the IMF has assessed that the country might not be able to generate desired dollar inflows, especially on account of commercial loans and the launching of international bonds. 

It is roughly estimated that the gross foreign exchange reserves might be slashed massively and the Fund was likely to project its reduction from $16 billion to less than $8 billion by the end of June 2023. 

The IMF is also giving a prescription of further tightening of policy rate by 100 basis to 200 basis points in the wake of rising CPI-based inflation, especially core inflation.

On the expenditure front, the government would also explore the possibility of slashing down the Public Sector Development Programme (PSDP), unbudgeted subsidies, and the possibility of cutting down expenditures on defence requirements.

The government has, so far, proposed slashing down the PSDP to the level of Rs352 billion as the utilisation of funds stood at Rs152 billion in the current fiscal year.

The power sector losses, so far, has proven to be a hard nut to crack. The country's negotiators participated in a meeting under the chairmanship of PM Shehbaz on Monday evening. 

The PM granted his approval for hiking the electricity tariff to Rs9 or 10 per unit. Pakistani side made a request to allow protection of those consumers who use up to 300 units of electricity per month. The IMF opposed it and argued that protection should be granted to only those consuming up to 200 units. 

The government has worked out a revised Circular Debt Management Plan (CDMP) under which it sought an additional subsidy requirement of Rs675 billion despite raising tariff of Rs7.10 per unit through quarterly tariff adjustments, deferred fuel price adjustment, and imposition of surcharge to clear the outstanding mark-up of piled up stocks of Power Holding Company.

But the IMF did not allow the additional subsidy requirement of Rs675 billion so it asked the government to revise upward the electricity tariff and abolish all kinds of unbudgeted packages for export-oriented sectors and the Kissan package as well. The IMF assessed that the additional subsidy would be hovering around Rs670 billion at a time when the government had given a subsidy of Rs570 billion in the budget for 2022-23.

The gas tariff will also be revised upward and the government is exploring its options to protect the lower slabs as much as possible.

Originally published in The News