The federal cabinet on Sunday adopted a plan to raise the power rate and eliminate subsidies as part of its renewed efforts to comply with the International Monetary Fund’s (IMF) requirements.
In this context, local media claimed that the cabinet has authorized a new circular debt management strategy for distribution.
The government will increase power costs by Rs. 7.91 per unit over the course of four quarterly adjustments: February–March 2023, March–May 2023, June–Aug., and September–November, according to the plan that will be given to the IMF.
According to the plan, from now on, the government will charge Rs. 3.21 per unit, Rs. 0.69 from March to May, and then another hike of Rs. 1.64 per unit from June to August 2023. The price of electricity will increase by Rs. 1.98 per unit from September to November.
From June 2022 to June 2023, the consumer base pricing would increase from Rs. 15.28 per unit to Rs. 23.39 per unit.
The government also decided to stop providing exporters with a Rs. 65 billion electricity subsidies starting in March 2023.
Government Efforts for the IMF deal
The removal of the electricity subsidy for exporters will be able to bring in Rs. 51 billion for the government, while the elimination of the electricity subsidy under the Kissan Package starting in March 2023 will bring in Rs. 14 billion. The electricity subsidy of Rs. 12.13 per unit would be refunded to the export sector.
By June 2023, approximately Rs. 250 billion would also be recouped from electricity users. According to the plan, a premium of Rs. 3.39 per unit will be charged, according to sources.
As a result of the rise in quarterly adjustments through June, Rs. 73 billion will be earned. According to sources, this month’s quarterly adjustment may result in an increase in energy prices of up to Rs. 4.46.
The administration is making every effort to maintain the Extended Fund Facility (EFF) borrowing deal with the IMF.
The IMF has in the meantime discussed its menu with Pakistani authorities, but there are still open questions over the precise taxation measures, an increase in the base power rate, and obtaining assurances for gross external finance.
The menu, which was recommended in the Memorandum of Economic and Financial Policies (MEFP), has been the subject of ongoing discussion among the decision-makers here in Islamabad for the past two days.
In order to finalize specific taxation measures, resolve the ongoing dispute over the power base tariff, and incorporate gross external financing requirements and the Net International Reserves (NIR) target for the end of June 2023, the Pakistani side will communicate with the IMF side through a virtual meeting on Monday (today). The length of time it will take for both parties to resolve these unresolved concerns is not yet known.
“The IMF shared its menu and virtual discussions will kick-start Monday evening to finalize details on relevant important fronts. Once all gaps are filled, then the staff level agreement will be struck,” top official sources confirmed while talking to the local news channel on Sunday.
Everything is now on the table for debate in order to finalize the measures.
What the government did over the past ten days of negotiations with the IMF review team while it was stationed here is the question at hand. Nothing seemed to be concluded.
The government prioritized the flood levy, while the IMF opposed all of the on-off measures. The IMF demands the implementation of “permanent revenue measures,” such as increasing the GST from 17 to 18 percent, imposing a GST on POL items, and hiking the petroleum charge on energy.
The increase in Federal Excise Duty (FED) on sugary drinks (it’s still under consideration), the increase in FED on locally produced and imported vehicles, the increase in FED on cigarettes, and other tax increases will raise between Rs. 60 and Rs. 65 billion from the increase in GST rate from 17 to 18 percent.
“Some proposals triggered a heated debate between the two sides. At one stage, a special assistant to the PM had to play a role to pacify the sentimental environment, as one participant from the Pakistani side argued before the IMF mission last week that why the Fund mission was asking for all kinds of regressive taxations measures amid rising inflationary pressures.”
However, raising it to such a level appeared unachievable. This is the main sticking point because Pakistan is eagerly awaiting the fulfilment of the promises made by the UAE, Qatar, Saudi Arabia, and China.
The IMF asserts that it will only enter into a program once these nations guarantee help to Pakistan, but these nations assert that they will support Islamabad if Islamabad is included in the scheme. How this problem will be solved in the upcoming days and weeks is unknown.
To read our blog on “To make IMF deal, Govt. to impose Rs. 170 bn new taxes,” click here.
