Home TRENDING GOVERNMENT HINTS AT ENDING EXPORTERS POWER SUBSIDIES

GOVERNMENT HINTS AT ENDING EXPORTERS POWER SUBSIDIES

There are rumors that the government may end exporters' access to power subsidies.

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There are rumors that the government may end exporters’ access to power subsidies.
Technical discussions with the IMF will continue into the next week.

Photo: File

ISLAMABAD: Pakistan and the International Monetary Fund (IMF) have extended technical talks until Monday because disagreements still exist between their positions on the use of electricity, taxes, and the fiscal deficit, but the government has stated that it is prepared to cut all kinds of spending and eliminate some unplanned subsidies.

The IMF team’s “harsh” treatment of the country, according to Prime Minister Shehbaz Sharif, prompted the Pakistani authorities to clarify their position.

The premier’s comments put the authorities in an embarrassing position and forced them to defend themselves to Nathan Porter, the IMF’s mission chief.
Removing the general power subsidies for exporters is one of the actions the administration is prepared to take. The government is also open to provide only specific subsidies related to export revenue.

To pass on the smallest increase in power prices and taxes to the average person, the Public Sector Development Programme (PSDP) and some security-related expenses may also be reduced.

Additionally, reports claimed that in order to persuade the IMF to label the continuing negotiations as “successful,” taxes and electricity costs would be raised.

According to government officials, “the technical talks are scheduled to end on Friday, but discussions will continue on Monday in areas where the IMF requested further clarification on the data.”

They added, though, that the IMF had not this time questioned the veracity of the figures.

According to the sources, the disagreement is actually over the interpretation.

The conversations, according to those with knowledge of them, had focused on the budgetary shortfall that resulted from circular debt in the power industry.

They said that there were still issues with the Federal Board of Revenue’s (FBR) ability to hit its Rs7.470 trillion yearly objective.

The fiscal shortfall, according to the IMF, is estimated to be close to 1% of the GDP, or roughly Rs800 billion.

Sources indicate that the government has calculated this sum to be approximately 0.7% of GDP, or Rs620 billion.

The sources also stated that they hoped to bridge these projections by Monday at the following round of technical discussions.

After closing the gap, the IMF might release the first draught of the Memorandum for Economic and Financial Policies (MEFP) on Tuesday, which might signal the beginning of policy discussions.

According to the sources, there is a chance that the IMF would want Pakistan to take specific steps before the board meeting in order to approve the loan request.

The officials made it clear that thus far, just the 9th review of the $1.1 billion tranche release has been discussed.

The IMF had the option of combining the following two reviews—the 10th and 11th—depending on the progress made by both parties.

According to the sources, the Power Division had submitted a Rs 952 billion circular debt flow plan to the IMF, but the international lender did not accept the presumptions.

The amount of unbudgeted subsidies, they continued, had been revised downward to Rs605 billion from the original estimate of Rs675 billion.

The IMF recognised that the government was unable to stop subsidising power for farmers.

It also supported the government’s position that the subsidies for Azad Jammu and Kashmir (AJK) could not be terminated at this time.

In a similar vein, Balochistan’s tube-well subsidy would continue.

But there are a lot of areas where subsidies will be cut.

According to the sources, this includes the IMF’s demand to stop the exporters’ untargeted support.

According to the sources, the IMF also appreciated the government’s position that some of the actions needed to address long-standing problems in the power sector could not be taken in the near future and might instead be carried out under the terms of the upcoming programme from the international lender.

They also mentioned that the petroleum secretary would update the IMF on the circular debt in the gas sector. The global lender was unlikely to demand an increase in gas costs, though.

According to the sources, there are still some discrepancies between the revenue estimates provided by the FBR and IMF teams and the yearly objective of Rs7.470 trillion.

The IMF did not concur that the FBR could meet its annual objective without adopting new measures, thus this gap would be filled by extra revenue-generating measures.

On Monday, the sources said, the FBR chief would make another presentation to the IMF.

Senior officials acknowledged that the IMF had asked for the General Sales Tax (GST) to be raised to 18%, but they also noted that the government has so far resisted the request.

They claimed that the administration was currently resisting calls to reinstate the GST on petroleum goods but that things will become clearer by next week.

The ministry’s officials responded that both the security expenses and PSDP were being looked at for rationalisation in response to the query of whether the military expenses might also be reduced to minimise the need for additional taxes.

The government will boost the monthly payment of the Benazir Income Support Program (BISP) participants in an effort to lessen the effects of the rise in electricity rates and taxes.

According to the officials, there is no disagreement between the two parties regarding the needs for external financing.

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