In a major development, Pakistan and the IMF on Tuesday evening came to an agreement on the federal budget for 2022–2023, which allowed for the reemergence of the extended fund facility (EFF) after the government pledged to raise an additional Rs. 436 billion in taxes and gradually raise the petroleum levy up to Rs. 50 per liter.
The agreement was achieved at a meeting between the IMF staff mission and the Pakistani economic delegation, which was chaired by Finance Minister Miftah Ismail, over a video link.
Esther Perez Ruiz, the IMF’s resident representative in Pakistan, acknowledged that significant progress had been achieved on the FY23 budget, but added that “Discussions between the IMF staff and the authorities on policies to strengthen macroeconomic stability in the coming year continue.”
Over the following few days, the IMF mission and the State Bank will finalize the monetary targets, and in the interim, they will share the draught of a Memorandum of Economic and Financial Policy (MEFP).
Prior actions that must be taken before the IMF board considers Pakistan’s request for clearance and the subsequent release of around $1 billion are included in the MEFP as well.
Finance Minister Ismail told journalists, “We have now locked the budget in consultation with the IMF,” adding that all budget-related difficulties had been resolved with the Fund.
The two parties concurred that the IMF should likewise publish a declaration attesting to significant advancements in the fiscal framework.
Top government sources claimed that in order to appease the IMF mission, Pakistan agreed to begin imposing a petroleum development charge on all POL products. This levy will gradually increase by Rs. 5 per month to a maximum of Rs. 50.
In a separate retreat, the government also decided to implement a poverty tax of 1% on companies making up to Rs. 150 million, 2% on those making up to Rs. 200 million, and 3% on those making over Rs. 250 million, and 4% on those making over Rs. 300 million.
The administration had only imposed a 2 percent poverty tax on people making Rs. 300 million or more in the initial budget.
According to the sources, the IMF team will now finalize targets for net domestic assets and net foreign reserves, although everything related to the agreement had already been resolved.
According to insiders, the IMF team would present the government with its draught MEFP on Friday.
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