ISLAMABAD – Crucial policy level talks between Pakistan and International Monetary Fund (IMF) would start from today to finalize a memorandum of economic and financial policies (MEFP). Technical level talks between Pakistan and IMF had started from January 31 and were scheduled to conclude on last Friday. However, the talks were extended for one day, till Monday, to finalize the plan to control the budget deficit. Now, the policy level talks would continue from today till February 9 to finalize a memorandum of economic and financial policies (MEFP).
Both the sides have tried to resolve the deadline over the huge fiscal gap. Pakistan and IMF had differences over the fiscal gap during the current fiscal year, as expenditures are likely to increase due to the hike in interest payment and tax collection might not reach the target during the current fiscal year. The IMF has protected Pakistan’s primary deficit gap at 0.9% of gross domestic product (GDP) equivalent to Rs800-850 billion mainly because of less tax and non-tax revenues and increased expenditures. However, the Pakistani side did not accept such a fiscal gap, arguing that it was estimated to the tune of 0.5 to 0.6% of GDP in the range of Rs400 to Rs450 billion for the current fiscal year.
An official informed that the IMF has asked to abolish the reduced electricity tariff for the export-oriented sector and link it with export proceeds. However, power subsidy under Kissan Package and subsidies to Azad Jammu and Kashmir and Gilgit Baltistan would continue. The Fund has also asked to eliminate exemptions in income tax during the current fiscal year. The visiting Fund has also asked to bring reforms in power sector by reducing line losses and improving revenue collection and also reforms in Federal Board of Revenue. Pakistan has assured to increase power tariff to reduce the volume of circular debt, which is around Rs2.5 trillion.
Still, according to the official, there are many points on which both have differences. The government has yet to accept the Fund’s major demands of increasing standard General Sales Tax by one percent to 18 percent, imposing GST or increasing levy on petroleum products and many other taxation issues. All these issues would be finalized in the policy level talks. During the technical talks, the IMF has asked to expedite the privatization programme.