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Pakistan approves new tax on electricity to meet IMF bailout conditions

Finance Minister Ishaq Dar said government officials and the IMF delegation would resume the talks in virtual mode from Monday

Published: Sat 11 Feb 2023, 11:33 AM

Updated: Sat 11 Feb 2023, 12:20 PM

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  • PTI

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Reuters file photo

Reuters file photo

Moving swiftly to pacify the International Monetary Fund (IMF), the Pakistan government approved a new tax on electricity users. This is expected to raise an additional Rs 170 billion in revenue to meet the conditions of the global lender, according to a statement.

The IMF delegation held 10-day marathon talks with Pakistan officials to release the next tranche of $1.1 billion out of an already-agreed loan but left on Thursday for Washington without signing a staff-level agreement.

Finance Minister Ishaq Dar, who had led the Pakistan side in talks, told the media on Friday that prior actions were needed as the two sides would resume the talks in virtual mode from Monday.

Hours later, the minister chaired the meeting of the Economic Coordination Committee (ECC) of the cabinet which approved the imposition of a special financing surcharge of Rs 3.39 per unit in average power tariff in addition to quarterly tariff adjustments of up to Rs 3.21 per unit for one year and recovery of pending fuel cost adjustments of up to Rs 4 per unit for about three months.

The ECC also approved the discontinuation of power tariff subsidies to zero-rated industries as well as the Kissan package with effect from March 1 to fulfil other prior action conditions by the IMF.

The meeting approved an overarching Revised Circular Debt (power sector debt) Reduction Plan worth Rs 952 billion for the current fiscal year that would also involve an additional budget subsidy of about Rs 335 billion to meet another condition, the Ministry of Finance said in a statement on Saturday.

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The ECC also okayed a technical supplementary grant of Rs 450 million in favour of the Ministry of Defence, showing that the country would continue to spend on defence.

Earlier, Pakistan received a jolt when the IMF team left without an agreement to finalise the 9th review of the $7-billion loans which was initially agreed upon in 2019 and later suspended when Pakistan failed to fulfil conditions but revived in August last year after fresh commitments.

Unlike the past practices, the IMF this time insisted that Pakistan should take prior actions before it would open its coffers for the country. Among other measures, the country also agreed to raise 1 per cent the General Sales Tax (GST) rate, in just four months, from the current 17 per cent.

Meanwhile, the foreign exchange reserves have dropped below $3 billion, putting more pressure on the rupee and giving air to speculation of default and negatively impacting the equity market.

Internationally, the Pakistani bonds due for repayment in April 2024 tumbled 4.6 cents on the dollar or roughly nine per cent. Bonds with longer repayment dates fell between two and three cents.

Moody’s Investors Service stated on Friday that Pakistan remains vulnerable on the external payment front.

“Pakistan’s government liquidity and external vulnerability risks are elevated, and there remain considerable risks around Pakistan’s ability to secure required financing to meet its needs for the next few years fully,” it said.



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