After a year-long pause on the International Monetary Fund (IMF) programme, the government is now trying to make fast-paced progress to clear the reform backlog over the next few days.

Last week, it announced major economic policy decisions. The federal cabinet approved for submission to parliament three critical laws. One of them is aimed at granting complete autonomy to the State Bank of Pakistan (SBP). Another one proposes amendments to Finance Bill 2020-21 to withdraw more than 80 income tax exemptions mostly to the corporate sector. The third one is a state-owned entities (SOE) law that aims at freeing these companies from direct interference from the ministries concerned and empowering the finance ministry to monitor their financials.

Income Tax (Second Amendment) Act 2021, SBP (Amendment) Bill 2021 and SOEs (Governance and Operations) Bill 2021 are set to be introduced in parliament within the current week as prior actions for the revival of the Fund programme.

These are just a few outstanding items on the unfinished agenda of the IMF programme under four reviews (second to fifth) that should have been addressed over the last one year i.e. since February 2020 when the programme was practically suspended. All those 30-plus items have now been clubbed together like the four quarterly reviews.

The government has surprisingly changed its stance on the ‘absolute autonomy’ to the SBP — something it resisted when Dr Shaikh was finance minister during the previous Fund programme under the PPP government

As low-hanging fruits, the Ministry of Finance submitted a mid-year budget review to parliament on March 1 and notified Financial Management and Powers of Principal Accounting Officers Regulations 2021. The first-round increase in electricity rates had already been implemented a couple of weeks ago while the second-round increase along with gas price hikes will come into force no later than July 1. In fact, a 7-8 per cent increase in gas rates is becoming due in weeks as per the determinations of the Oil and Gas Regulatory Authority (Ogra) pending with the government for almost a month.

On the same date (July 1), Income Tax (Second Amendment) Act will also come into force to generate up to Rs140 billion worth of additional revenues. Simultaneously, the government will also be withdrawing similar exemptions in general sales tax and customs duty as part of about Rs700bn worth of additional revenue measures for the next year.

Last week, through a tactical majority vote, the government pushed through the National Assembly’s standing committee on power a bill to amend Nepra Act to regain powers to impose surcharges on electricity charges. A similar law concerning the oil and gas regulator will follow suit in due course.

The Circular Debt Management Plan (CDMP) has also been finalised and is currently in its approval phase. A broad outline of the programme with the key principle was shared last week with the Economic Coordination Committee (ECC) of the cabinet for shifting over Rs220bn bills on account of the special tariff for Azad Kashmir, tube-wells, industrial support and ex–Federally Administered Tribal Areas (Fata) to the tariff differential subsidy from the existing Rs190bn.

Under the three-year CDMP 2021-23, the government is targeting to increase distribution companies’ bill collection to 96pc and reduce system losses from 17pc to about 15.6pc. The changed Nepra law will be used as an instrument for regular tariff adjustments. For the first time, the government is now conceding under the plan that its continuous increases in electricity rates was now pushing well-to-do consumers out of the grid to alternate options like solar power supply.

Yet it is targeting two more major tariff increases of about 10pc and 12-15pc in July and October 2021, respectively. With the combination of these measures along with targeted surcharges for debt servicing and project financing, the government anticipates the annual build-up in the circular debt to come down to about Rs120bn by 2023 from Rs538bn last fiscal year.

Under the Nepra Amendment Bill that has now gone to the National Assembly for formal approval, the government will be empowered to impose a surcharge of up to 10pc of the average electricity tariff on consumers. At the current average tariff, the government can now impose about Rs1.50 per unit additional surcharge to cover the cost of inefficiencies and losses.

The Power Division said the government had been funding Rs100bn per annum to service power-sector loans and the law once approved will allow the government to raise a part of these funds through the new surcharge with the approval of the cabinet or to finance power-sector development projects like Diamer-Basha Dam.

But there’s many a slip ’twixt the cup and the lip. The government had made similar pronouncements over the past two years about eliminating the circular debt and improving the system. Yet the results emerged to be otherwise.

Also, the opposition parties are planning a long march to Islamabad later this month that will be followed very soon by the arrival of Ramazan for which the government will remain under pressure not to take steps that may be seen as inflationary. How the third wave of Covid-19 turns out in the days ahead is equally uncertain. It may not be politically viable in the given circumstances for the government to abide by the revised deadlines and benchmarks.

The government surprisingly changed its stance on ‘absolute autonomy’ to the SBP, which it had been resisting until a few months ago and for almost a decade when Dr Shaikh was finance minister during the previous Fund programme in the PPP government. The draft law provided a five-year guaranteed term to the SBP governor instead of three years, freed the central bank from economic growth considerations to target inflation in line with best international standards in an environment where a major part of inflation is driven by demand-supply gaps in essential commodities and administered utility prices. The government also surrendered the right to borrow from the central bank and agreed to abolish the Monetary Policy and Fiscal Coordination Board.

The Auditor General of Pakistan may, without prejudice to the autonomy of the bank, conduct an audit of the accounts of the SBP, but such an audit will not have anything to do with the merits of the policy decisions.

The governor, board of directors or deputy governors and members of the monetary policy team, officers and employees of the SBP will be protected against any suit, prosecution or any other legal proceeding for any act of commission or omission in good faith and from the ambit of the National Accountability Bureau and the Federal Investigation Agency.

Published in Dawn, The Business and Finance Weekly, , March 15th, 2021