ISLAMABAD: The visiting IMF team has informed Pakistani authorities that the next bailout package under the Extended Fund Facility (EFF) will only be considered after the presentation and parliamentary approval of a budget aligned with IMF guidelines.
This arrangement could initiate formal negotiations and the signing of a staff-level agreement for a new bailout package, potentially supplemented with $6 to $8 billion in climate finance, likely in July 2024.
“In the 2024-25 budget, the government must demonstrate its ability to raise FBR revenue, generate a primary surplus by curbing expenditures, and undertake structural reforms to minimize State-Owned Enterprises (SOEs) losses. Electricity and gas tariffs will need to be increased in July and August 2024 to secure an IMF deal,” top official sources confirmed to The News on Wednesday.
The Ministry of Finance hosted a dinner in honor of the visiting IMF team, led by Nathan Porter, on Tuesday night in Islamabad, where ongoing discussions were expected to conclude.
The upcoming 2024-25 budget will test the current regime’s ability to meet the IMF’s stringent conditions. The visiting IMF team has collected relevant data from major economic sectors and outlined the budgetary expectations for 2024-25.
The IMF has clearly stated that the government must devise a roadmap to increase the tax-to-GDP ratio, which might further decline to 9 percent for the current fiscal year. The FBR is struggling to collect Rs 9.415 trillion, but independent tax experts predict a potential shortfall. If the FBR collects Rs 9 trillion this fiscal year, the IMF will demand an increase to over Rs 12 trillion in the next budget, necessitating a Rs 3 trillion increase amid a nominal growth rate of 16 percent.
The non-tax revenue target will also rise significantly, with a carbon levy under consideration for the next budget.
On the expenditure side, the government must rationalize SOEs, pensions, and subsidies to reduce overall expenditures. Federally, provincial projects will be abandoned in the next fiscal year.
Regarding tariff rationalization, the IMF has requested increases in power tariffs through baseline adjustments, fuel price adjustments, and quarterly tariff adjustments. Gas tariffs will also rise.
For solar net metering, the government plans to hire a Chinese consultant and others to study the system independently due to its negative impact on DISCOs’ grids and the transmission and distribution system, exacerbating the power sector’s fiscal issues. Solar panels might generate 6,000 megawatts of electricity, but consumption drops significantly in winter, creating challenges for managing generated power.
A senior official expressed hope that the visiting IMF team would avoid front-loading the next IMF package to protect the social fabric of society, given the persistent, high inflationary pressures experienced in recent years.
