IMF-Pakistan Budget Talks Continue Amid Push for Fiscal Reforms

Key Highlights

• IMF mission extends budget negotiations in Islamabad
• Petroleum levy target may increase sharply
• Provinces asked to generate additional revenue
• Economic growth target projected at 3.5 pc
• The inflation forecast remains above 8pc

Significant progress has been made in the ongoing budget talks between Pakistan and the International Monetary Fund, where sources have said that the establishment of the IMF mission has been extended by two more days to finalise the fiscal targets and policy measures for the next fiscal year.

According to official sources, the talks were initially scheduled to conclude today; however, it was decided to continue due to detailed consultations on some financial and energy-related issues. Officials say that consensus has been reached on most points, but discussions on revenue targets, energy rates and provincial financial responsibilities are still ongoing.

According to sources, the IMF has recommended a significant increase in the petroleum levy for the next fiscal year, under which the levy could go up to Rs 100 per litre. The government is planning to collect Rs 1,730 billion in revenue from this to contain the fiscal deficit.

Similarly, a tax collection target of Rs 15,264 billion has been proposed for the Federal Board of Revenue. Sources say that the government wants to generate additional revenue through tax audits, promotion of the documentary economy and revised tax measures on various industrial sectors. The possibility of additional collection of about Rs50 billion from the sugar, cement, tobacco and fertiliser sectors is being shown.

According to sources, the IMF has also demanded that the provinces collect an additional Rs430 billion in revenue and provide a surplus of about Rs2 trillion to the federation. Economic observers say that these targets may prove to be a major fiscal challenge for the provincial governments.

Regarding the economic indicators for the next fiscal year, the government has estimated a growth rate of 3.5 per cent and an average inflation of 8.4 per cent. According to economic experts, fluctuations in global oil prices and regional tensions may affect Pakistan’s economic performance.

According to sources, the government has also agreed in principle to increase the assistance amount under the Benazir Income Support Program. According to the proposed plan, the quarterly payment can be increased from Rs 14,500 to Rs 18,000 to provide relief to the low-income group.

On the other hand, it has been proposed to maintain the conditions related to energy sector reforms. Sources say that the condition of adjusting electricity and gas prices twice a year will continue to exist. In addition, a proposal to not provide new tax incentives for special economic zones and phase out the existing incentives by 2035 is also under consideration.

Sources related to defence and development expenditure said that it has been proposed to increase the defence budget to Rs 2,665 billion, while allocating Rs 986 billion for the federal development programme. The provincial development budget is also likely to reach Rs 2.5 trillion.

According to economic analysts, the government is facing the challenge of preparing a budget that, on the one hand, meets the conditions of the IMF programme and, on the other hand, can balance the rising inflation and economic pressure on the public.