• Advance IMF team arrives to lay groundwork for policy discussions starting May 16
• Lender expects govt to increase revenue collection by Rs1.7tr, contain federal development spending at Rs890bn, raise petroleum levy target to Rs1.1tr

ISLAMABAD: As Pakistan gears up for talks on a new bailout programme next week, the International Monetary Fund (IMF) expects the government to raise revenue collection by Rs1.7 trillion, contain federal development spending at Rs890 billion and increase petroleum levy target by more than 24 per cent to about Rs1.1tr.

Informed sources said an advance IMF team has already arrived in Islamabad to lay the groundwork for these policy discussions, which will be spearheaded by mission chief Nathan Porter starting May 16.

This would be Pakistan’s 24th IMF programme and become part of the next fiscal year’s budget, to be announced in the first week of June.

Before the talks begin, the Fund has already made public its projections on macroeconomic targets, not only for the next fiscal year but over the next five years (until 2028-29), as part of the final review of the 23rd programme, which was completed last month.

The government has already given an undertaking to the lender to continue gas and electricity tariff adjustments “in a timely manner,” starting with the new fiscal year and simultaneously make efforts to reduce energy costs and induct the private sector to address circular debt.

It has also promised to continue a tight monetary policy and switch to market-based exchange rate besides strengthening social security and state-owned enterprises (SOEs), even though the IMF expects major risks to the reform programme owing to political unrest and geopolitical situation.

The Fund expected Pakistan’s gross external financing needs for the next year at $21.044bn and anticipated gross flows of about $25bn. Yet, it forecast the current account deficit for the next fiscal year at 1.2pc of GDP, or $4.55bn.

The lender of last resort expects Pakistan’s total revenue for the next fiscal year to be Rs15.5tr, almost Rs2tr higher than the current year’s Rs13.36tr. Of this, federal revenue should go up to Rs13.3tr next year compared to Rs11.3tr this year.

The Federal Board of Revenue’s (FBR) collection would be Rs11.11tr, showing an increase of Rs1.7tr over the current fiscal year’s Rs9.415tr, without taking into account additional measures.

On the other hand, the IMF expects petroleum levy collection to reach Rs1.08tr next year compared to the current year’s budget target of Rs869bn, which has now been revised to Rs923bn.

Interest payments would continue to rise next year by Rs1.4tr to reach Rs9.8tr when compared to Rs8.37tr by the end of the current year. No wonder the total expenditure is estimated to cross Rs24.7tr next year against Rs21.3tr this year. Current expenditure would surpass Rs22tr next year against Rs19.1tr this year.

“Downside risks remain exceptionally high,” the IMF noted in its report released on Friday, adding that “while the new government has indicated its intention to continue the SBA’s policies, political uncertainty remains significant. A resurgence in social tensions (reflecting the complex political scene and high cost of living) could weigh on policy and reform implementation.”

Therefore, the Fund feared policy slippages, together with lower external financing, could undermine the narrow path to debt sustainability and place pressure on the exchange rate.

Timely notification of the next fiscal year’s annual power tariff rebasing would be critical to the continued prevention of further circular debt flow, as will further collections efforts, including steps to enhance and institutionalise digital monitoring.

“In parallel, the authorities should press ahead with agricultural tube well subsidy reform, for which a finalised plan is targeted by end-FY24,” the IMF said.

The IMF has also called for revisiting, where feasible, the terms of power purchase agreements. In the gas sector, the IMF wanted continued timely gas tariff determinations and notifications within the required 40-day window, starting with the June 2024 semi-annual adjustment, to prevent further debt flows.

Published in Dawn, May 11th, 2024