Rs170 billion in taxes to be imposed through mini-budget for revival of IMF loan program

Rs170 billion in taxes to be imposed through mini-budget for revival of IMF loan program

The Minister of Finance, Ishaq Dar, has announced that the talks between Pakistan and the International Monetary Fund (IMF) have concluded positively. In order to revive the loan program, the government will be required to implement a mini-budget, which includes collecting approximately Rs170 billion in taxes.

During a media briefing, the finance minister confirmed receipt of the draft of the Memorandum of Economic and Financial Policies (MEFP) from the IMF based in Washington. At the outset of his media address, the minister emphasized that the current government is continuing to implement the program signed by former Prime Minister Imran Khan with the IMF in 2019-2020, and that the talks are being held as a “sovereign commitment” under the leadership of Shehbaz Sharif.

“This is an old agreement which had been suspended and delayed previously,” he noted. 

Regarding the discussions between Pakistan and the IMF mission, the finance minister stated that the talks, which lasted for ten days, were comprehensive and covered a range of topics including the power and gas sectors, as well as the fiscal and monetary aspects.

“The SBP governor and officials from different departments and ministries participated in the talks,” said Dar.

Finance Minister Ishaq Dar has shared details of the agreement reached with the IMF regarding the country’s financial situation. The finance minister confirmed that taxation measures of Rs170 billion will be taken, dispelling rumors of a larger figure of Rs700-800 billion.

Dar highlighted that reforms in the energy sector will be a key focus, aimed at curbing the flow of circular debt, particularly in the gas sector where efforts will be made to bring the circular debt to zero and minimize untargeted subsidies.

The minister acknowledged that some of the reforms suggested by the IMF are beneficial for Pakistan and emphasized the need for reforms in the country. He added that Prime Minister Shehbaz Sharif has assured the IMF of the government’s commitment to implement the necessary reforms.

As per the standard procedure, a MEFP and a letter of intent are given. “The government has received the MEFP draft this morning and we will go through it on the weekend. A virtual meeting with the IMF will be held after that on Monday,” he added.

“We believe that there are some sectors that need to be reformed in Pakistan’s interest,” he said.

The Minister of Finance, in a statement, indicated that the country’s economy is facing significant challenges, with its current ranking standing at 47. The minister attributed the economic struggles to poor governance and mismanagement, and emphasized the need to address and rectify the situation.

In reference to the power sector, the finance minister noted that a large portion of the national budget, approximately Rs3,000 billion, is spent on electricity generation, however, the recovery rate for these expenditures is only Rs1,800 billion. This highlights the pressing need for reforms and improvements in the sector to enhance efficiency and ensure sustained economic growth.

“Even though these reforms are painful but we will have to implement them,” he maintained.

He said that the government had decided that Pakistan will complete the IMF’s programme for the second time.

“Pakistan will get $1.2 billion after the approval of IMF’s Executive Board.”

The Minister of Finance announced that it has been determined to increase the budget of the Benazir Income Support Program (BISP), bringing it to a total of Rs400 billion. This increase is aimed at mitigating the impact of inflation on the most vulnerable segments of society.

Regarding the declining foreign currency reserves, the minister provided reassurance that efforts are underway to boost them. The minister credited the State Bank of Pakistan (SBP) with managing the situation and noted that support from friendly countries has also been secured through commitments.

“Pakistan had made big payments to countries during this time, and once the programme is finalised, we will get the amount back,” said Dar.

The Minister of Finance criticized the previous administration for the credibility gap in the country’s reputation, stating that the lack of trust from the IMF is a result of the previous government’s failure to implement reforms, and even reversing them during a period of political instability.

“This has negatively portrayed Pakistan’s image and this has affected the recent talks as [the IMF] is not sure if we would agree to it,” he added.

He added that the government refused to impose sales tax on petrol and the IMF conceded it. “It was mutually agreed that there will be no sales tax on petroleum products,” he said. He added that the general sales taxes will be added to the Rs170 billion.

Dar said that it is necessary to recover Rs170 billion in taxes within the current fiscal year, within a period of four months.

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