IMF Demands Removal of Power Subsidy As Pakistan Runs Out of Time

The International Monetary Fund (IMF) and Pakistan have extended technical talks on the power sector for two more days, with the lender demanding that power subsidies to the export-oriented sector be removed, as well as additional taxes.

According to a national daily, technical-level talks with the IMF on the power sector, one of the most difficult areas, continued over the weekend and will resume today.

To help close the revenue gap, the lender clearly wants additional tax measures, such as a 1% increase in the standard sales tax rate. However, any decision in this regard is contingent on the revenue gap, which will be finalised during policy-level discussions.

The IMF has advocated for the removal of the Rs. 100 billion power subsidy to the export-oriented sector, as well as the full recovery of the Rs. 952 billion power sector gap through tariff increases. The government, on the other hand, has been attempting to explain to the IMF team that settling the entire amount would be extremely difficult. When asked how much power subsidies were provided to the export sector, sources said Rs. 50 billion.

On the fiscal front, a one-time flood levy with an estimated revenue of Rs 180 billion has been proposed. They did not rule out reducing the public sector development programme (PSDP) significantly in order to reduce the fiscal deficit. As a result of the recent devaluation, the cost of debt servicing has risen to Rs 5.2 trillion, implying a fiscal deficit of more than 7%, they added.

The second phase of policy-level talks on the Memorandum of Economic and Financial Policies (MEFP) is scheduled to last until February 9. As previously reported, the discussions are focusing on expenditure and revenue performance details in order to identify the policy measures — both revenue and non-revenue — that must be implemented over the next four months of the current fiscal year.

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